-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MrkN2uemjMNDFerBmqC/YSiEhgE657J9Hpb0KOj8s2t6Cq/9UyQzGJGiIxxGkP2r lo8uVEvojYkWIFjolLdyhg== 0000930413-05-004215.txt : 20050609 0000930413-05-004215.hdr.sgml : 20050609 20050609155118 ACCESSION NUMBER: 0000930413-05-004215 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050609 DATE AS OF CHANGE: 20050609 EFFECTIVENESS DATE: 20050609 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMITH BARNEY MUNI FUNDS CENTRAL INDEX KEY: 0000775370 IRS NUMBER: 136861405 STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-04395 FILM NUMBER: 05887575 BUSINESS ADDRESS: STREET 1: 125 BROAD STREET STREET 2: 10TH FLOOR, MF-2 CITY: NEW YORK STATE: NY ZIP: 10004 BUSINESS PHONE: 800-451-2010 MAIL ADDRESS: STREET 1: 125 BROAD STREET STREET 2: 10TH FLOOR, MF-2 CITY: NEW YORK STATE: NY ZIP: 10004 FORMER COMPANY: FORMER CONFORMED NAME: SMITH BARNEY MUNI BOND FUNDS DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MUNI BOND FUNDS DATE OF NAME CHANGE: 19910804 FORMER COMPANY: FORMER CONFORMED NAME: TEST MANAGED MUNICIPAL BOND FUNDS DATE OF NAME CHANGE: 19860626 N-CSR 1 c37168_ncsr.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number:   811-4395

Smith Barney Muni Funds
(Exact name of registrant as specified in charter)

125 Broad Street, New York, NY 10004
  (Address of principal executive offices) (Zip code)

Robert I. Frenkel, Esq.
Smith Barney Fund Management LLC
300 First Stamford Place
Stamford, CT 06902
  (Name and address of agent for service)

Registrant's telephone number, including area code: (800) 451-2010

Date of fiscal year end: March 31
Date of reporting period:
March 31, 2005

 

ITEM 1. REPORT TO STOCKHOLDERS.
 
        The Annual Report to Stockholders is filed herewith.

 



SMITH BARNEY
MUNI FUNDS
GEORGIA PORTFOLIO
PENNSYLVANIA PORTFOLIO

CLASSIC SERIES   |   ANNUAL REPORT   |   MARCH 31, 2005

 

 

 

 

 

 

 

 


Your Serious Money. Professionally Managed. SM

Your Serious Money. Professionally Managed. ® is a registered service mark of Citigroup Global Markets Inc.

N O T   F D I C   I N S U R E D   •   N OT   B A N K   G U A R A N T E E D   •   M A Y   L O S E   V A L U E

 


 


W H A T ’ S   I N S I D E

     
Letter from the Chairman    1 
     
Georgia Portfolio     
     
   Manager Overview    3 
     
   Fund at a Glance    7 
     
   Fund Expenses    8 
     
   Fund Performance    10 
     
   Historical Performance    11 
     
Pennsylvania Portfolio     
     
   Manager Overview    12 
     
   Fund at a Glance    16 
     
   Fund Expenses    17 
     
   Fund Performance    19 
     
   Historical Performance    20 
     
Schedules of Investments    21 
     
Statements of Assets and Liabilities    34 
     
Statements of Operations    35 
     
Statements of Changes in Net Assets    36 
     
Financial Highlights    38 
     
Notes to Financial Statements    44 
     
Report of Independent Registered Public Accounting Firm    55 
     
Additional Information    56 
     
Important Tax Information    60 


 


L E T T E R   F R O M   T H E   C H A I R M A N

 

Dear Shareholder,

Despite rising interest rates, continued high oil prices, geopolitical concerns and uncertainties surrounding the U.S. Presidential election, the U.S. economy continued to expand during the period. Following a 3.3% gain in the second quarter of 2004, gross domestic product (“GDP”)i growth was a robust 4.0% in the third quarter and 3.8% in the fourth quarter. On April 28, after the reporting period ended, first quarter 2005 GDP growth estimate came in at 3.1%.

Given the overall strength of the economy, the Federal Reserve Board (“Fed”)ii moved to raise interest rates in an attempt to ward off inflation. As expected, the Fed increased its target for the federal funds rateiii by 0.25% to 1.25% on June 30, 2004—the first rate hike in four years. The Fed again raised rates in 0.25% increments during its next six meetings, bringing the target for the federal funds rate to 2.75% by the end of March. The Fed raised its target rate by an additional 0.25% to 3.00% at its May meeting, after the Funds’ reporting period.

 
R. JAY GERKEN, CFA
Chairman, President and
Chief Executive Officer

For much of the reporting period, the fixed income market confounded many investors as short-term interest rates rose in concert with the Fed rate tightening, while longer-term rates, surprisingly, remained fairly steady. However, this changed late in the period, coinciding with the Fed’s official statement accompanying its March rate hike. While the Fed continued to say it expected to raise rates at a “measured” pace, it made several adjustments to its statement, which many investors interpreted to mean larger rate hikes could be possible in the future.

The municipal bond market, represented by the Lehman Brothers Municipal Bond Index,iv rose 2.67% for the year. Like the other fixed income markets, longer maturity munis performed better than their shorter-term counterparts.

Please read on for a more detailed look at prevailing economic and market conditions during the Funds’ fiscal year and to learn how those conditions have affected Fund performance.

Information About Your Fund

As you may be aware, several issues in the mutual fund industry have recently come under the scrutiny of federal and state regulators. The Funds’ Adviser and some of its affiliates have received requests for information from various government regulators regarding market timing, late trading, fees, and other mutual fund issues in connection with various investigations. The regulators appear to be examining, among other things, the Funds’ response to market timing and shareholder exchange activity, includ-

1   Smith Barney Muni Funds   |   2005 Annual Report


ing compliance with prospectus disclosure related to these subjects. The Funds have been informed that the Adviser and its affiliates are responding to those information requests, but are not in a position to predict the outcome of these requests and investigations.

Important information concerning the Funds and their Adviser with regard to recent regulatory developments is contained in the “Additional Information” note in the Notes to the Financial Statements included in this report.

As always, thank you for your confidence in our stewardship of your assets. We look forward to helping you continue to meet your financial goals.

Sincerely,


R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer

May 3, 2005

All index performance reflects no deduction for fees, expenses or taxes. Please note an investor cannot invest directly in an index.

i
Gross domestic product is a market value of goods and services produced by labor and property in a given country.
 
ii
The Federal Reserve Board is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.
 
iii
The federal funds rate is the interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans.
 
iv
The Lehman Brothers Municipal Bond Index is a broad measure of the municipal bond market with maturities of at least one year.
 

2   Smith Barney Muni Funds   |   2005 Annual Report


 


MANAGER  OVERVIEW

 

Georgia Portfolio
Market Overview

Although labor market growthi languished throughout 2003 into the first quarter of 2004, it rose significantly and remained strong in the early spring, and inflation picked up as well.ii

After an extended period of monetary easing, the Federal Reserve Board’s (“Fed”)iii monetary policymaking committee raised its federal funds rateiv target from a four-decade low of 1.00% to 1.25% at the end of June—the Fed’s first hike in four years. The increase marked a significant reversal from the Fed’s monetary policy position from June 2003, when it last slashed its rate target following a long series of accommodative rate cuts. The rate hike was widely anticipated due to comments from the Fed regarding the momentum behind the economy and signals that it was prepared to push rates higher from their near-historic lows. As a result, bond prices declined and yields rose sharply in April before prices stabilized somewhat in the early summer.

 


P
ETER M. COFFEY
Vice President and
Investment Officer

The Fed once again raised its target rate by 0.25% in August and September, bringing the rate to 1.75%. Given that bond prices had already factored in rate hikes to a significant extent, and coupling this with a lack of inflationary pressures, bond prices held up and actually rose over the third quarter. In September and October, the bond market benefited from falling stock and rising oil prices, which encouraged investors to reallocate capital into fixed-income securities.

Yields on bonds rose as their prices dropped in reaction to an employment report issued in November that yielded surprisingly robust labor market results.ii The Fed subsequently raised its fed funds rate target by 25 basis pointsv at its meetings in November, December, February and March, bringing the rate target to 2.75% at the end of the reporting period. The Fed raised its target rate by an additional 0.25% to 3.00% at its May meeting, after the Fund’s reporting period.

Regardless of the economic expansion and higher interest rates, the overall bond market posted a modest gain during the period. Municipal bond credit quality continued to improve, as municipalities benefited from higher tax revenues, driven by improving economic growth and fiscal discipline. This caused municipal credit quality spreads to tighten.

Over the 12-month period, municipal bonds outperformed maturity equivalent U.S. Treasuries.vi Compelling taxable equivalent yieldsvii for investors in middle- and higher-federal income tax brackets and low default rates continued to attract investors to municipal bond funds.

3   Smith Barney Muni Funds   |   2005 Annual Report


Performance Review

For the 12 months ended March 31, 2005, Class A shares of the Smith Barney Muni Funds—Georgia Portfolio, excluding sales charges, returned 1.64%. These shares outperformed the Lipper Georgia Municipal Debt Funds Category Average1, which was 1.54% for the same time frame. The Fund’s unmanaged benchmark, the Lehman Brothers Municipal Bond Index,viii returned 2.67% for the same period.

Certain investors may be subject to the federal Alternative Minimum Tax, and state and local taxes may apply. Capital gains, if any, are fully taxable. Please consult your personal tax or legal adviser.


PERFORMANCE SNAPSHOT
AS OF MARCH 31, 2005
(excluding sales charges)
(unaudited)

    6 Months   12 Months

Georgia Portfolio—Class A Shares    0.27 %    1.64 % 

Lehman Brothers Municipal Bond Index    1.21 %    2.67 % 

Lipper Georgia Municipal Debt Funds Category Average    0.69 %    1.54 % 


The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Principal value and investment returns will fluctuate and investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end, please visit our website at www.citigroupam.com.

Performance figures may reflect reimbursements and/or fee waivers, without which the performance would have been lower.

Class A share returns assume the reinvestment of income dividends and capital gains distributions at net asset value and the deduction of all fund expenses. Returns have not been adjusted to include sales charges that may apply when shares are purchased or the deduction of taxes that a shareholder would pay on fund distributions. Excluding sales charges, Class B shares returned 0.06% and Class C shares returned 0.04% over the six months ended March 31, 2005. Excluding sales charges, Class B shares returned 1.06% and Class C shares returned 1.09% over the twelve months ended March 31, 2005.

Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the period ended March 31, 2005, including the reinvestment of dividends and capital gains distributions, if any, calculated among the 29 funds for the six-month period and among the 29 funds for the 12-month period in the Fund’s Lipper category and excluding sales charges.


 

 

1
Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended March 31, 2005, including the reinvestment of dividends and capital gains, if any, calculated among the 29 funds in the Fund’s Lipper category, and excluding sales charges.
 

4   Smith Barney Muni Funds   |   2005 Annual Report


Factors that Influenced Fund Performance

Over the period, the Fund’s strongest performers included several issues that were advance-refunded in a declining rate environment. In addition, corporate-backed pollution control issues contributed positively to results as market perceptions of credit quality improved.

Conversely, our positioning strategy in long-term Treasury futures detracted from performance. While we believe this strategy reduced the portfolio’s overall volatility and may have helped to offset price declines when yields rose sharply from April through mid-June, overall it was a drag on performance during the reporting period. During the period, one of our multi-family housing issues was a drag on performance and was subsequently sold. In addition, a number of the Fund’s higher coupon securities were called at their first permissible opportunity, thus eroding some of the income the portfolio generates. Finally, our escrowed to maturity and pre-refunded issues, as well as other premium bonds with short calls, experienced modest price declines and detracted from performance.

We have begun to pare some of our medium and lower grade holdings where risk elements are beginning to outweigh our assessment of reward potential as credit quality spreads have continued to narrow.

During the period we maintained a conservative posture in terms of overall duration,ix or price sensitivity to interest rate movements. This low-duration approach to managing interest rate risk limited the Fund’s ability to completely participate in upside market movements during intervals when bond prices rose, such as last summer. However, the Fund benefited from this approach in absolute terms when bond prices dropped, particularly in the spring and fall. Given the current market environment, we believe this approach to reducing potential volatility is more prudent than a longer-duration strategy.

Thank you for your investment in the Smith Barney Muni Funds—Georgia Portfolio. As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the Fund’s investment goals.

Sincerely,


Peter M. Coffey
Vice President and Investment Officer

May 3, 2005

5   Smith Barney Muni Funds   |   2005 Annual Report


The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.

The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the Fund’s current or future investments. The Fund’s top five sector holdings (as a percentage of net assets) as of March 31, 2005 were: Education (15.9%), Water & Sewer (13.5%), Housing: Multi-Family (11.8%), Pollution Control (9.7%) and Public Facilities (9.4%) . The Fund’s portfolio composition is subject to change at any time.

RISKS: Keep in mind that the Fund’s investments are subject to interest rate and credit risks. As interest rates rise, bond prices fall, reducing the value of the Fund’s share price. As a non-diversified fund, it can invest a larger percentage of its assets in fewer issues than a diversified fund. This may magnify the Fund’s losses from events affecting a particular issuer. The Fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance.

All index performance reflects no deduction for fees, expenses or taxes. Please note an investor cannot invest directly in an index.

i
Source: Bureau of Labor Statistics based upon the growth of non-farm payroll jobs.
 
ii
Sources: Lehman Brothers. Inflation data based upon Consumer Price Index/deflation data.
 
iii
The Federal Reserve Board is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.
 
iv
The federal funds rate is the interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans.
 
v
A basis point is one one-hundredth (1/100 or 0.01) of one percent.
 
vi
Source: Lehman Brothers Indices. Note: This is not a complete discussion of all differences between two investments being shown. An investor should consider all risks and differences between these investments before choosing to invest in either. U.S. Treasury notes are backed by the full faith and credit of the United States government and offer a return of principal value if held to maturity.
 
vii
The yield needed on a taxable investment in order to match the tax-free return offered on a municipal bond; calculated by dividing the tax-exempt yield by (1 minus the investor’s marginal tax rate).
 
viii
The Lehman Brothers Municipal Bond Index is a broad measure of the municipal bond market with maturities of at least one year.
 
ix
Duration is a common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates.
 

6   Smith Barney Muni Funds   |   2005 Annual Report



Georgia Portfolio
Fund at a Glance (unaudited)



Investment Breakdown

7   Smith Barney Muni Funds   |   2005 Annual Report



Fund Expenses (unaudited)

Example

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end and back-end sales charges (loads) on purchase payments, reinvested dividends, or other distributions; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

This example is based on an investment of $1,000 invested on October 1, 2004 and held for the six months ended March 31, 2005.

Actual Expenses

The table below titled “Based on Actual Total Return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period”.


Based on Actual Total Return(1)
    Actual                      
    Total Return     Beginning      Ending    Annualized     Expenses 
    Without     Account      Account    Expense     Paid During 
Georgia Portfolio    Sales Charges(2)     Value      Value    Ratio     the Period(3) 

Class A    0.27 %        $1,000.00       $1,002.70     0.83 %      $4.14   

Class B    0.06       1,000.00      1,000.60    1.27       6.33 

Class C(4)    0.04       1,000.00      1,000.40    1.33       6.63 


(1)
For the six months ended March 31, 2005.
 
(2)
Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value and does not reflect the deduction of the applicable sales charge with respect to Class A shares or the applicable contingent deferred sales charges (“CDSC”) with respect to Class B and C shares. Total return is not annualized, as it may not be representative of the total return for the year. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower.
 
(3)
Expenses (net of voluntary fee waiver and/or expense reimbursement) are equal to each class’ respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 365.
 
(4)
On April 29, 2004, Class L shares were renamed as Class C shares.
 

8   Smith Barney Muni Funds   |   2005 Annual Report



Fund Expenses (unaudited) (continued)

Hypothetical Example for Comparison Purposes

The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front-end or back-end sales charges (loads). Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.


Based on Hypothetical Total Return(1)
    Hypothetical     Beginning      Ending    Annualized     Expenses 
    Annualized     Account      Account    Expense     Paid During 
Georgia Portfolio    Total Return     Value      Value    Ratio     the Period(2) 

Class A    5.00 %        $1,000.00       $1,020.79     0.83 %      $4.18  

Class B    5.00       1,000.00      1,018.60    1.27       6.39 

Class C(3)    5.00       1,000.00      1,018.30    1.33       6.69 


(1) For the six months ended March 31, 2005.
 
(2)
Expenses (net of voluntary fee waiver and/or expense reimbursement) are equal to each class’ respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 365.
 
(3) On April 29, 2004, Class L shares were renamed as Class C shares.
 

9   Smith Barney Muni Funds   |   2005 Annual Report



Georgia Portfolio


Average Annual Total Returns(1) (unaudited)
    Without Sales Charges(2)

    Class A  
Class B
  Class C(3)

Twelve Months Ended 3/31/05    1.64 %    1.06 %    1.09 % 

Five Years Ended 3/31/05    5.52     4.93     4.88  

Ten Years Ended 3/31/05    5.90     5.32     5.28  

Inception* through 3/31/05    5.94     5.20     5.28  

 
   
With Sales Charges(4)

    Class A  
Class B
  Class C(3)

Twelve Months Ended 3/31/05    (2.45 )%    (3.31 )%    0.12 % 

Five Years Ended 3/31/05    4.65     4.76     4.88  

Ten Years Ended 3/31/05    5.47     5.32     5.28  

Inception* through 3/31/05    5.54     5.20     5.28  



Cumulative Total Returns(1) (unaudited)
    Without Sales Charges(2)

Class A (3/31/95 through 3/31/05)    77.32 % 

Class B (3/31/95 through 3/31/05)    67.99  

Class C(3) (3/31/95 through 3/31/05)    67.30  


(1)
All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower.
 
(2)
Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value and does not reflect the deduction of the applicable sales charge with respect to Class A shares or the applicable contingent deferred sales charges (“CDSC”) with respect to Class B and C shares.
 
(3)
On April 29, 2004, Class L shares were renamed as Class C shares.
 
(4)
Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value. In addition, Class A shares reflect the deduction of the maximum sales charge of 4.00%; Class B shares reflect the deduction of a 4.50% CDSC, which applies if shares are redeemed within one year from purchase payment. This CDSC declines by 0.50% the first year after purchase payment and thereafter by 1.00% per year until no CDSC is incurred. Class C shares also reflect the deduction of a 1.00% CDSC, which applies if shares are redeemed within one year from purchase payment.
 
* Inception dates for Class A, B and C shares are April 4, 1994, June 15, 1994 and April 14, 1994, respectively.

10   Smith Barney Muni Funds   |   2005 Annual Report



Historical Performance (unaudited)
Value of $10,000 Invested in Class A Shares of the
Georgia Portfolio vs. Lehman Brothers Municipal Bond Index
and Lipper Georgia Municipal Debt Funds Average
March 1995 — March 2005


Hypothetical illustration of $10,000 invested in Class A shares on March 31, 1995, assuming a deduction of the maximum 4.00% sales charge at the time of investment and reinvestment of dividends and capital gains, if any, at net asset value through March 31, 2005. The Lehman Brothers Municipal Bond Index is a broad measure of the municipal bond market with maturities of at least one year. The Index is unmanaged and is not subject to the same management and trading expenses of a mutual fund. Please note that an investor cannot invest directly in an index. The Lipper Georgia Municipal Debt Funds Average is composed of the Fund’s peer group of mutual funds (29 funds as of March 31, 2005). The performance of the Fund’s other classes may be greater or less than the Class A shares’ performance indicated on this chart, depending on whether greater or lesser sales charges and fees were incurred by shareholders investing in the other classes.
   
  All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower.

11   Smith Barney Muni Funds   |   2005 Annual Report



MANAGER OVERVIEW

 

Pennsylvania Portfolio
Market Overview

Although labor market growthi languished throughout 2003 into the first quarter of 2004, it rose significantly and remained strong in the early spring, and inflation picked up as well.ii

After an extended period of monetary easing, the Federal Reserve Board’s (“Fed”)iii monetary policymaking committee raised its federal funds rateiv target from a four-decade low of 1.00% to 1.25% at the end of June—the Fed’s first hike in four years. The increase marked a significant reversal from the Fed’s monetary policy position from June 2003, when it last slashed its rate target following a long series of accommodative rate cuts. The rate hike was widely anticipated due to comments from the Fed regarding the momentum behind the economy and signals that it was prepared to push rates higher from their near-historic lows. As a result, bond prices declined and yields rose sharply in April before prices stabilized somewhat in the early summer.

 
PETER M. COFFEY
Vice President and
Investment Officer

The Fed once again raised its target rate by 0.25% in August and September, bringing the rate to 1.75%. Given that bond prices had already factored in rate hikes to a significant extent, and coupling this with a lack of inflationary pressures, bond prices held up and actually rose over the third quarter. In September and October, the bond market benefited from falling stock and rising oil prices, which encouraged investors to reallocate capital into fixed-income securities.

Yields on bonds rose as their prices dropped in reaction to an employment report issued in November that yielded surprisingly robust labor market results.ii The Fed subsequently raised its fed funds rate target by 25 basis pointsv at its meetings in November, December, February and March, bringing the rate target to 2.75% at the end of the reporting period. The Fed raised its target rate by an additional 0.25% to 3.00% at its May meeting, after the Fund’s reporting period.

Regardless of the economic expansion and higher interest rates, the overall bond market posted a modest gain during the period. Municipal bond credit quality continued to improve, as municipalities benefited from higher tax revenues, driven by improving economic growth and fiscal discipline. This caused municipal credit quality spreads to tighten.

Over the 12-month period, municipal bonds outperformed maturity equivalent U.S. Treasuries.vi Compelling taxable equivalent yieldsvii for investors in middle- and higher-federal income tax brackets and low default rates continued to attract investors to municipal bond funds.

12   Smith Barney Muni Funds   |   2005 Annual Report


Performance Review

For the 12 months ended March 31, 2005, Class A shares of the Smith Barney Muni Funds—Pennsylvania Portfolio, excluding sales charges, returned 2.39%. These shares outperformed the Lipper Pennsylvania Municipal Debt Funds Category Average,1 which was 2.19% for the same time frame. The Fund’s unmanaged benchmark, the Lehman Brothers Municipal Bond Index,viii returned 2.67% for the same period.

Certain investors may be subject to the federal Alternative Minimum Tax, and state and local taxes may apply. Capital gains, if any, are fully taxable. Please consult your personal tax or legal adviser.


PERFORMANCE SNAPSHOT
AS OF MARCH 31, 2005
(excluding sales charges)
(unaudited)

    6 Months   12 Months

Pennsylvania Portfolio—Class A Shares    1.39 %    2.39 % 

Lehman Brothers Municipal Bond Index    1.21 %    2.67 % 

Lipper Pennsylvania Municipal Debt Funds Category Average    1.32 %    2.19 % 


The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Principal value and investment returns will fluctuate and investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end, please visit our website at www.citigroupam.com.

Performance figures may reflect reimbursements and/or fee waivers, without which the performance would have been lower.

Class A share returns assume the reinvestment of income dividends and capital gains distributions at net asset value and the deduction of all fund expenses. Returns have not been adjusted to include sales charges that may apply when shares are purchased or the deduction of taxes that a shareholder would pay on fund distributions. Excluding sales charges, Class B shares returned 1.20% and Class C shares returned 1.17% over the six months ended March 31, 2005. Excluding sales charges, Class B shares returned 1.84% and Class C shares returned 1.79% over the twelve months ended March 31, 2005.

Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the period ended March 31, 2005, including the reinvestment of dividends and capital gains distributions, if any, calculated among the 61 funds for the six-month period and among the 61 funds for the 12-month period in the Fund’s Lipper category and excluding sales charges.


 

 

1
Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended March 31, 2005, including the reinvestment of dividends and capital gains, if any, calculated among the 61 funds in the Fund’s Lipper category, and excluding sales charges.
 

13   Smith Barney Muni Funds   |   2005 Annual Report


Factors that Influenced Fund Performance

Over the period, the Fund’s strongest performers included several issues that were advance-refunded in a declining rate environment. In addition, one of our corporate-backed pollution control issues contributed positively to results as market perceptions of credit quality improved.

Conversely, our positioning strategy in long-term Treasury futures detracted from performance. While we believe this strategy reduced the portfolio’s overall volatility and may have helped to offset price declines when yields rose sharply from April through mid-June, overall it was a drag on performance during the reporting period. During the period, some issues in the life care, hotel development and office development sectors were a drag on performance. In addition, a number of the Fund’s higher coupon securities were called at their first permissible opportunity, thus eroding some of the income the portfolio generates. Finally, our escrowed to maturity and pre-refunded issues, as well as other premium bonds with short calls, experienced modest price declines and detracted from performance.

We have begun to pare some of our medium and lower grade holdings where risk elements are beginning to outweigh our assessment of reward potential as credit quality spreads have continued to narrow.

During the period we maintained a conservative posture in terms of overall duration,ix or price sensitivity to interest rate movements. This low-duration approach to managing interest rate risk limited the Fund’s ability to completely participate in upside market movements during intervals when bond prices rose, such as last summer. However, the Fund benefited from this approach in absolute terms when bond prices dropped, particularly in the spring and fall. Given the current market environment, we believe this approach to reducing potential volatility is more prudent than a longer-duration strategy.

Thank you for your investment in the Smith Barney Muni Funds—Pennsylvania Portfolio. As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the Fund’s investment goals.

Sincerely,


Peter M. Coffey
Vice President and Investment Officer

May 3, 2005

14   Smith Barney Muni Funds   |   2005 Annual Report


The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.

The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the Fund’s current or future investments. The Fund’s top five sector holdings (as a percentage of net assets) as of March 31, 2005 were: General Obligation (17.1%), Education (15.6%), Transportation (13.1%), Hospitals (9.3%) and Life Care (7.0%) . The Fund’s portfolio composition is subject to change at any time.

RISKS: Keep in mind that the Fund’s investments are subject to interest rate and credit risks. As interest rates rise, bond prices fall, reducing the value of the Fund’s share price. As a non-diversified fund, it can invest a larger percentage of its assets in fewer issues than a diversified fund. This may magnify the Fund’s losses from events affecting a particular issuer. The Fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance.

All index performance reflects no deduction for fees, expenses or taxes. Please note an investor cannot invest directly in an index.

i
Source: Bureau of Labor Statistics based upon the growth of non-farm payroll jobs.
 
ii
Sources: Lehman Brothers. Inflation data based upon Consumer Price Index/deflation data.
 
iii
The Federal Reserve Board is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.
 
iv
The federal funds rate is the interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans.
 
v
A basis point is one one-hundredth (1/100 or 0.01) of one percent.
 
vi
Source: Lehman Brothers Indices. Note: This is not a complete discussion of all differences between two investments being shown. An investor should consider all risks and differences between these investments before choosing to invest in either. U.S. Treasury notes are backed by the full faith and credit of the United States government and offer a return of principal value if held to maturity.
 
vii
The yield needed on a taxable investment in order to match the tax-free return offered on a municipal bond; calculated by dividing the tax-exempt yield by (1 minus the investor’s marginal tax rate).
 
viii
The Lehman Brothers Municipal Bond Index is a broad measure of the municipal bond market with maturities of at least one year.
 
ix
Duration is a common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates.
 

15   Smith Barney Muni Funds   |   2005 Annual Report



Pennsylvania Portfolio
Fund at a Glance (unaudited)



Investment Breakdown

16   Smith Barney Muni Funds   |   2005 Annual Report



Fund Expenses (unaudited)

Example

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end and back-end sales charges (loads) on purchase payments, reinvested dividends, or other distributions; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

This example is based on an investment of $1,000 invested on October 1, 2004 and held for the six months ended March 31, 2005.

Actual Expenses

The table below titled “Based on Actual Total Return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period”.


Based on Actual Total Return(1)
    Actual                      
    Total Return     Beginning      Ending    Annualized     Expenses 
    Without     Account      Account    Expense     Paid During 
Pennsylvania Portfolio    Sales Charges(2)     Value      Value    Ratio     the Period(3) 

Class A    1.39 %        $1,000.00       $1,013.90     0.81 %      $4.07  

Class B    1.20       1,000.00      1,012.00    1.26       6.32 

Class C(4)    1.17       1,000.00      1,011.70    1.36       6.82 


(1)
For the six months ended March 31, 2005.
 
(2)
Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value and does not reflect the deduction of the applicable sales charge with respect to Class A shares or the applicable contingent deferred sales charges (“CDSC”) with respect to Class B and C shares. Total return is not annualized, as it may not be representative of the total return for the year. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower.
 
(3)
Expenses (net of voluntary fee waiver) are equal to each class’ respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 365.
 
(4)
On April 29, 2004, Class L shares were renamed as Class C shares.
 

17   Smith Barney Muni Funds   |   2005 Annual Report



Fund Expenses (unaudited) (continued)

Hypothetical Example for Comparison Purposes

The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front-end or back-end sales charges (loads). Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.


Based on Hypothetical Total Return(1)
    Hypothetical     Beginning      Ending    Annualized     Expenses 
    Annualized     Account      Account    Expense     Paid During 
Pennsylvania Portfolio    Total Return     Value      Value    Ratio     the Period(2) 

Class A    5.00 %      $1,000.00       $1,020.89     0.81 %      $4.08  

Class B    5.00       1,000.00      1,018.65    1.26       6.34 

Class C(3)    5.00       1,000.00      1,018.15    1.36       6.84 


(1)
For the six months ended March 31, 2005.
 
(2)
Expenses (net of voluntary fee waiver) are equal to each class’ respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 365.
 
(3)
On April 29, 2004, Class L shares were renamed as Class C shares.
 

18   Smith Barney Muni Funds   |   2005 Annual Report



Pennsylvania Portfolio


Average Annual Total Returns(1) (unaudited)
    Without Sales Charges(2)

   
Class A
Class B
Class C(3)

Twelve Months Ended 3/31/05    2.39 %    1.84 %    1.79 % 

Five Years Ended 3/31/05    6.21     5.64     5.58  

Ten Years Ended 3/31/05    5.92     5.38     5.32  

Inception* through 3/31/05    6.19     5.41     5.58  

 
   
With Sales Charges(4)

    Class A  
Class B
  Class C(3)

Twelve Months Ended 3/31/05    (1.68 )%    (2.56 )%    0.81 % 

Five Years Ended 3/31/05    5.34     5.48     5.58  

Ten Years Ended 3/31/05    5.49     5.38     5.32  

Inception* through 3/31/05    5.80     5.41     5.58  



Cumulative Total Returns(1) (unaudited)
    Without Sales Charges(2)

Class A (3/31/95 through 3/31/05)    77.81 % 

Class B (3/31/95 through 3/31/05)    68.89  

Class C(3) (3/31/95 through 3/31/05)    67.92  


(1)
All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower.
 
(2)
Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value and does not reflect the deduction of the applicable sales charge with respect to Class A shares or the applicable contingent deferred sales charges (“CDSC”) with respect to Class B and C shares.
 
(3)
On April 29, 2004, Class L shares were renamed as Class C shares.
 
(4)
Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value. In addition, Class A shares reflect the deduction of the maximum sales charge of 4.00%; Class B shares reflect the deduction of a 4.50% CDSC, which applies if shares are redeemed within one year from purchase payment. This CDSC declines by 0.50% the first year after purchase payment and thereafter by 1.00% per year until no CDSC is incurred. Class C shares also reflect the deduction of a 1.00% CDSC, which applies if shares are redeemed within one year from purchase payment.
 
*
Inception dates for Class A, B and C shares are April 4, 1994, June 20, 1994 and April 5, 1994, respectively.

19   Smith Barney Muni Funds   |   2005 Annual Report



Historical Performance (unaudited)
Value of $10,000 Invested in Class A Shares of the
Pennsylvania Portfolio vs. Lehman Brothers Municipal Bond Index
and Lipper Pennsylvania Municipal Debt Funds Average
March 1995 — March 2005

 

Hypothetical illustration of $10,000 invested in Class A shares on March 31, 1995, assuming a deduction of the maximum 4.00% sales charge at the time of investment and reinvestment of dividends and capital gains, if any, at net asset value through March 31, 2005. The Lehman Brothers Municipal Bond Index is a broad measure of the municipal bond market with maturities of at least one year. The Index is unmanaged and is not subject to the same management and trading expenses of a mutual fund. Please note that an investor cannot invest directly in an index. The Lipper Pennsylvania Municipal Debt Funds Average is composed of the Fund’s peer group of mutual funds (61 funds as of March 31, 2005). The performance of the Fund’s other classes may be greater or less than the Class A shares’ performance indicated on this chart, depending on whether greater or lesser sales charges and fees were incurred by shareholders investing in the other classes.
   
 
All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance figures may reflect voluntary fee waivers and/or expense reimbursements. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower.

20   Smith Barney Muni Funds   |   2005 Annual Report



Schedules of Investments 
 
March 31, 2005 


GEORGIA PORTFOLIO
FACE 
           
AMOUNT 
  RATING(a)   
SECURITY 
  VALUE 

Education — 15.9% 
       
$1,000,000 
  Aa2*    Athens-Clarke County University Government Development     
         Authority Revenue, (University of Georgia Athletic Association     
         Project), 2.290% due 4/1/05 (b)  $  1,000,000 
      Private Colleges & Universities Authority Revenue:     
         Emory University Project, Series A:     
1,000,000 
  AA           5.500% due 11/1/24    1,085,900 
2,000,000 
  AA           5.500% due 11/1/31 (c)    2,146,040 
2,000,000 
  BBB       Mercer Housing Corp. Project, Series A, 6.000% due 6/1/31 (c)    2,059,440 
500,000 
  Baa1*       Mercer University Project, 5.750% due 10/1/21    538,800 
1,000,000 
  A   
Savannah EDA, Student Housing Revenue, (University 
   
     
   Funding Foundation Project), Series A, ACA-Insured,
   
         6.750% due 11/15/20    1,098,250 
1,000,000 
  A    University of the Virgin Islands, Refunding & Improvement,      
         Series A, ACA-Insured, 6.000% due 12/1/24    1,092,710 

          9,021,140 

 
Escrowed to Maturity (d) — 6.1% 
   
265,000 
  AAA    Clarke County Hospital Authority Revenue, MBIA-Insured,      
         9.875% due 1/1/06    278,997 
     
Cobb County Kennestone Hospital Authority Revenue:
   
230,000 
  Aaa*       9.500% due 2/1/08    256,004 
480,000 
  AAA       Series 86A, MBIA-Insured, 7.750% due 2/1/07    504,773 
155,000 
  AAA    Columbia County Water & Sewer Revenue, MBIA-Insured,      
         9.750% due 12/1/08    173,831 
990,000 
  AAA   
Columbus Medical Center Hospital Authority Revenue,  
   
     
Certificate of Anticipation, 7.750% due 7/1/10 (e)(f) 
  1,108,622 
290,000 
  AAA   
Fulton County Water & Sewer Revenue, FGIC-Insured,  
   
         6.375% due 1/1/14 (e)(f)    336,420 
350,000 
  AAA    Puerto Rico Commonwealth Aqueduct & Sewer Authority     
         Revenue, 10.250% due 7/1/09    410,771 
340,000 
  AAA    Tri-City Hospital Authority Revenue, Certificate of Anticipation,      
     
   South Fulton Hospital, FGIC-Insured, 10.250% due
   
         7/1/06 (e)(f)    358,088 

          3,427,506 

 
Finance — 0.9% 
       
500,000 
  NR    Virgin Islands PFA Revenue, Series E, 6.000% due 10/1/22    514,375 

 
General Obligation — 5.3% 
   
1,000,000 
  AAA    Georgia State, GO, Series B, 5.750% due 8/1/17 (c)    1,168,880 
500,000 
  AA+    Jefferson, GO, 5.900% due 2/1/25    557,260 
1,000,000 
  AAA    Puerto Rico Commonwealth, GO, RITES, XLCA-Insured, 7.839%     
         due 7/1/17 (c)(g)    1,281,720 

          3,007,860 

 
           

See Notes to Financial Statements.

21   Smith Barney Muni Funds   |   2005 Annual Report



Schedules of Investments (continued) 
 
March 31, 2005 


GEORGIA PORTFOLIO

FACE             
AMOUNT 
  RATING(a)   
SECURITY 
  VALUE 

Hospitals — 7.9%         
$1,000,000    A-    Chatham County Hospital Authority Revenue, Memorial Health     
           Medical Center, Series A, 6.125% due 1/1/24  $  1,084,810 
1,000,000    Aaa*   
Newton County Hospital Authority Revenue, (Newton Health 
   
       
   System Project), AMBAC-Insured, 6.100% due 2/1/24 (c) 
  1,120,490 
1,000,000    BBB-    Puerto Rico Industrial, Tourist, Educational, Medical &     
           Environmental Control Facilities, Series A, (Ryder Memorial     
           Hospital Project), 6.700% due 5/1/24    1,008,340 
1,175,000    Aaa*    Ware County Hospital Authority Revenue, Certificate of     
           Anticipation, MBIA-Insured, 5.500% due 3/1/21 (c)    1,262,878 

            4,476,518 

 
Housing: Multi-Family — 11.8%     
500,000    AAA    Acworth Housing Authority Revenue, (Wingate Falls     
       
   Apartments Project), FSA-Insured, 6.125% due 3/1/17 (h) 
  520,570 
1,000,000    A   
Atlanta Development Authority Student Housing Revenue,  
   
       
   (ADA/CAU Partners Inc. ), Series A, ACA-Insured, 6.250% 
   
           due 7/1/24    1,091,700 
       
Clayton County Hospital Authority MFH Revenue, Series A:
   
1,260,000    Aaa*   
   Southlake Cove Project, GNMA-Collateralized, 5.600% 
   
       
   due 12/20/24 (c) 
  1,349,737 
1,480,000    Aaa*   
   Vineyard Pointe Apartments Project, GNMA-Collateralized,  
   
               5.500% due 10/20/32 (c)    1,541,272 
1,000,000    Aa2*   
De Kalb County Housing Authority, MFH Revenue, Friendly 
   
       
   Hills Apartments, Series A, FHA-Insured, 7.050%
   
           due 1/1/39 (h)    1,081,060 
1,000,000    AAA   
Lawrenceville Housing Authority, MFH Revenue, (Knollwood 
   
       
   Park Apartments Project), FNMA-Collateralized, 6.250% 
   
           due 12/1/29 (h)    1,088,370 

            6,672,709 

 
Housing: Single-Family — 0.7%     
10,000    AAA   
Fulton County Housing Authority, Single-Family Mortgage 
   
       
   Revenue, Series A, GNMA-Collateralized, 6.600%
   
           due 3/1/28 (h)    10,181 
300,000    AAA   
Puerto Rico Housing, Bank & Finance Agency, Single-Family 
   
       
   Mortgage Revenue, Affordable Housing Mortgage,
   
           Portfolio I, FHLMC/FNMA/GNMA-Collateralized, 6.250%     
           due 4/1/29 (h)    306,240 
95,000    AAA    Virgin Islands HFA, Single-Family Mortgage Revenue,      
       
   Series A, GNMA-Collateralized, 6.450% due 3/1/16 (h) 
  96,983 

            413,404 


See Notes to Financial Statements.

22   Smith Barney Muni Funds   |   2005 Annual Report



Schedules of Investments (continued) 
 
March 31, 2005 


GEORGIA PORTFOLIO

FACE             
AMOUNT    RATING(a)    SECURITY    VALUE 

Miscellaneous — 1.3%         
$500,000 
  BBB+    Puerto Rico Housing Bank & Finance Agency, 7.500%     
         due 12/1/06  $  526,675 
300,000 
  B+    Puerto Rico Industrial, Tourist, Educational, Medical &     
       
Environmental Control Facilities, Series A, (San Lucas &
   
           Cristo Project), 5.750% due 6/1/19    222,783 

            749,458 

 
Pollution Control — 9.7%       
1,000,000 
  Ba3*    Effingham County IDA, PCR, (Georgia-Pacific Project), 6.500%     
         due 6/1/31    1,041,020 
     
Monroe County Development Authority, PCR, (Oglethorpe
   
         Power Co. Scherer Project), Series A:     
200,000 
  AAA    2.290% due 4/1/05 (b)    200,000 
500,000 
  A    6.800% due 1/1/12    592,320 
2,000,000 
  BBB   
Richmond County Development Authority, Environmental 
   
     
   Improvement Revenue, (International Paper Co. Project),  
   
         Series A, 6.250% due 2/1/25 (c)(h)    2,101,500 
1,000,000 
  NR    Rockdale County Development Authority, Solid Waste Disposal     
       
   Revenue, (Visy Paper Inc. Project), 7.500% due 1/1/26 (h) 
  1,018,300 
500,000 
  Baa2*   
Savannah EDA, PCR, (Union Camp Corp. Project), 6.150% 
   
           due 3/1/17    554,415 

            5,507,555 

 
Pre-Refunded (i) — 8.2%       
1,000,000 
  AAA   
Atlanta Airport Revenue, Series A, FGIC-Insured, (Call 1/1/10 
   
         @ 101), 5.500% due 1/1/26 (c)    1,105,220 
500,000 
  AA    Clayton County Water & Sewer Revenue, (Call 5/1/11 @ 101),      
         5.625% due 5/1/20    563,460 
1,000,000 
  AAA   
Fulton County Housing Authority, MFH Revenue, (Concorde 
   
     
   Place Apartment Project), Series A, (Call 7/1/08 @ 100),  
   
         6.300% due 7/1/16 (h)    1,096,210 
660,000 
  BBB†   
Fulton County Residential Care Facilities, (Canterbury Court 
   
           Project), (Call 10/1/09 @ 102), 6.300% due 10/1/24    751,892 
1,000,000 
  NR    Savannah EDA, College of Arts & Design Inc. Project,      
            (Call 10/1/09 @ 102), 6.800% due 10/1/19 (c)    1,146,340 

            4,663,122 

 
Public Facilities — 9.4%       
1,000,000 
  Aaa*   
Albany-Dougherty Inner City Authority, COP, (Public Purpose 
   
         Project), AMBAC-Insured, 5.625% due 1/1/16    1,092,850 
1,000,000 
  AAA    Association County Commissioners of Georgia Leasing     
         Program, COP, (Rockdale County Public Purpose Project),      
         AMBAC-Insured, 5.625% due 7/1/20    1,091,610 
1,000,000 
  AAA   
Cobb-Marietta Counties Coliseum & Exhibit Hall Authority 
   
           Revenue, MBIA-Insured, 5.625% due 10/1/26 (c)    1,136,110 

See Notes to Financial Statements.

23   Smith Barney Muni Funds   |   2005 Annual Report



Schedules of Investments (continued) 
 
March 31, 2005 


GEORGIA PORTFOLIO

FACE             
AMOUNT 
  RATING(a)   
SECURITY
  VALUE 

Public Facilities — 9.4% (continued)     
$2,000,000    AAA    East Point Building Authority Revenue, FSA-Insured, zero     
           coupon to yield 5.630% due 2/1/20 
$ 
891,080 
1,000,000    AAA    Fulton County Facilities Corp. , COP, (Fulton County Public     
       
   Purpose Project), AMBAC-Insured, 5.500% due 11/1/18 
  1,094,310 

            5,305,960 

 
Transportation — 2.6%         
1,000,000    AAA    Atlanta Airport Passenger Facilities Charge Revenue,      
           Series J, 5.000% due 1/1/34    1,023,940 
250,000    AAA    Metropolitan Atlanta Rapid Transit Authority, Sales Tax     
       
   Revenue, Series P, AMBAC-Insured, 6.250% due 7/1/20 
  295,965 
200,000    CCC    Puerto Rico Port Authority Revenue, Special Facilities American     
           Airlines, Series A, 6.250% due 6/1/26 (h)    140,876 

            1,460,781 

 
Utilities — 3.0%         
500,000    AAA    Georgia Municipal Electric Authority, Power Revenue,      
           Series EE, AMBAC-Insured, 7.250% due 1/1/24    680,540 
1,000,000    AAA    Puerto Rico Electric Power Authority, Power Revenue,      
           Series RR, FGIC-Insured, 5.000% due 7/1/35 (j)    1,041,430 

            1,721,970 

 
Water & Sewer — 13.5%     
        Atlanta Water & Wastewater Revenue, Series A:     
1,000,000    AAA       FGIC-Insured, 5.500% due 11/1/19 (c)    1,142,940 
1,000,000    AAA       MBIA-Insured, 5.500% due 11/1/27 (c)    1,137,720 
500,000    A+    Cartersville Development Authority Revenue, Sewer Facilities,      
           Anheuser Busch, 6.125% due 5/1/27 (h)    518,430 
1,000,000    AA    Clayton County Water & Sewer Revenue, 5.000% due 5/1/20    1,063,430 
1,000,000    AAA    Columbia County Water & Sewer Revenue, FGIC-Insured,      
           5.500% due 6/1/25    1,072,570 
1,000,000    AA    De Kalb County Water & Sewer Revenue, Series A,      
           5.000% due 10/1/35    1,028,550 
10,000    AAA    Fulton County Water & Sewer Revenue, FGIC-Insured,      
           6.375% due 1/1/14    11,601 
500,000    AAA    Milledgeville Water & Sewer Revenue, FSA-Insured, 6.000%     
       
   due 12/1/21 
  598,325 
1,000,000    AAA    Rockdale County Water & Sewer Authority Revenue, Series A,      
           MBIA-Insured, 5.500% due 7/1/25    1,074,190 

            7,647,756 

        TOTAL INVESTMENTS — 96.3% (Cost — $50,655,829**)    54,590,114 
        Other Assets in Excess of Liabilities — 3.7%    2,100,215 

        TOTAL NET ASSETS — 100.0% 
$ 
56,690,329 


See Notes to Financial Statements.

24   Smith Barney Muni Funds   |   2005 Annual Report



Schedules of Investments (continued) 
 
March 31, 2005 


GEORGIA PORTFOLIO


(a)
All ratings are by Standard & Poor's Ratings Service, except for those identified by an asterisk (*) or a dagger (†), which are rated by Moody's Investors Service or Fitch Ratings, respectively.
 
(b)
Variable rate demand obligation — payable at par on demand at any time on no more than seven days notice. The coupon rate listed represents the current rate at the period end. The due dates on these securities reflect the next interest rate reset date or, when applicable, the maturity date.
 
(c)
All or a portion of this security is segregated for open futures contracts or securities traded on a when-issued basis.
 
(d)
Bonds are escrowed to maturity with government securities and are considered by the investment manager to be triple-A rated even if the issuer has not applied for new ratings.
 
(e)
Variable interest rate — subject to periodic change.
 
(f)
All or a portion of this security is held as collateral for open futures contracts.
 
(g)
Residual interest tax-exempt securities — coupon varies inversely with level of short-term tax exempt interest rates.
 
(h)
Income from this issue is considered a preference item for purposes of calculating the alternative minimum tax.
 
(i)
Pre-Refunded bonds are escrowed with government securities and are considered by the investment manager to be triple-A rated even if the issuer has not applied for new ratings.
 
(j)
Security is issued on a when-issued basis.
 
** Aggregate cost for federal income tax purposes is $50,638,816.
   
  See pages 31 through 33 for definitions of ratings and certain abbreviations.

 

See Notes to Financial Statements.

25   Smith Barney Muni Funds   |   2005 Annual Report



Schedules of Investments (continued) 
 
March 31, 2005 


PENNSYLVANIA PORTFOLIO

FACE             
AMOUNT 
  RATING(a)    SECURITY    VALUE 

Education — 15.6%         
$1,000,000    BBB-    Delaware County Authority, College Revenue, Neuman College,      
           6.000% due 10/1/31  $  1,054,830 
1,255,000    AAA    Grove City Area Hospital Authority Revenue, (Woodland     
           Place Project), FGIC-Insured, 5.500% due 3/1/25 (b)    1,348,761 
       
Lycoming County Authority, College Revenue, Pennsylvania
   
           College of Technology, AMBAC-Insured:     
1,000,000    Aaa*           5.125% due 5/1/22    1,052,930 
1,000,000    Aaa*           5.375% due 7/1/30    1,067,710 
1,000,000    Aaa*           5.250% due 5/1/32    1,043,120 
        Pennsylvania State Higher Education Facilities Authority Revenue:     
1,000,000    AAA       Clarion University Foundation Inc. , Series A, XLCA-Insured,      
           5.250% due 7/1/18    1,080,380 
1,000,000    A       Drexel University, 6.000% due 5/1/29    1,104,470 
1,000,000    AA    Pennsylvania State University, 5.000% due 9/1/35    1,031,070 
1,000,000    AAA    State Public School Building Authority, School Revenue,      
       
   (Daniel Bonne School District Project), MBIA-Insured,
   
           5.000% due 4/1/22    1,048,280 
2,000,000    AA+    Swarthmore Boro Authority, College Revenue, 5.250%     
           due 9/15/20 (b)    2,155,540 

            11,987,091 

 
Escrowed To Maturity (c) — 5.2%     
275,000    NR   
Allegheny County Hospital Development Authority Revenue,  
   
       
   Montefiore Hospital Association, Western Pennsylvania,  
   
           6.875% due 7/1/09    295,380 
85,000    AAA    Berks County Municipal Authority, Hospital Revenue,      
           Community General Hospital, AMBAC-Insured, 9.500%     
           due 7/1/05    86,432 
495,000    AAA   
Bristol Township Authority, Sewer Revenue, MBIA-Insured,  
   
           10.125% due 4/1/09    564,909 
1,385,000    AAA   
Cambria County Hospital Development Authority, Hospital 
   
       
   Revenue, Conemaugh Valley Memorial Hospital, 7.625% 
   
           due 9/1/11    1,556,449 
115,000    AAA    Coatesville Water Guaranteed Revenue, 6.250% due 10/15/13    128,242 
200,000    Aaa*    Hopewell Township, Special Obligation, 10.600% due 5/1/13    240,424 
230,000    NR    Pennsylvania HFA, 7.750% due 12/1/07    247,009 
205,000    AAA    West Chester Sewer Revenue, 9.750% due 5/1/07    219,979 
        Westmoreland County Municipal Authority:     
480,000    AAA       Special Obligation, 9.125% due 7/1/10    534,629 
135,000    Aaa*       Water Revenue, 8.625% due 7/1/10    153,869 

            4,027,322 


See Notes to Financial Statements.

26   Smith Barney Muni Funds   |   2005 Annual Report



Schedules of Investments (continued) 
 
March 31, 2005 


PENNSYLVANIA PORTFOLIO

FACE   
       
AMOUNT 
 
RATING(a) 
 
SECURITY 
  VALUE 

Finance — 1.5%
       
$1,000,000   
BBB
  Virgin Islands PFA Revenue, Gross Receipts Taxes, Series A,      
   
     6.500% due 10/1/24 (b)  $  1,133,850 

 
General Obligation — 17.1%     
1,000,000   
AAA
  Allegheny County GO, Series C-52, FGIC-Insured, 5.250%     
   
 
   due 11/1/21 
  1,098,400 
1,000,000   
AAA
  Armstrong County GO, MBIA-Insured, 5.400% due 6/1/31    1,056,110 
905,000   
AAA
  Conneaut School District GO, AMBAC-Insured, 9.500%     
   
 
   due 5/1/12 (c)(d) 
  1,072,914 
1,000,000   
AAA
  Dauphin County GO, Second Series, AMBAC-Insured, 5.125%     
   
 
   due 11/15/22 
  1,046,610 
1,000,000   
AAA
  Greater Johnstown School District GO, Series B, MBIA-Insured,      
   
     5.500% due 8/1/18    1,089,350 
1,455,000   
AAA
  Greensburg Salem School District GO, FGIC-Insured, 5.375%     
   
 
   due 9/15/18 (b) 
  1,583,651 
1,000,000   
Aaa*
  Luzerne County GO, Series A, MBIA-Insured, 5.250%     
   
 
   due 11/15/18 
  1,079,350 
1,000,000   
AA
  Pennsylvania State GO, First Series, (Call 2/1/12 @ 100),      
   
     5.250% due 2/1/19 (e)    1,096,440 
1,000,000   
AAA
  Philadelphia School District GO, Series A, (Call 2/1/12 @ 100),      
   
     FSA-Insured, 5.500% due 2/1/31 (e)    1,111,420 
1,660,000   
AAA
  Pittsburgh County GO, Series A, AMBAC-Insured, 5.250%     
   
 
   due 9/1/22 (b) 
  1,745,191 
1,000,000   
AAA
  Plum Boro School District GO, (Call 9/15/11 @ 100), FGIC-Insured,      
   
     5.250% due 9/15/30 (e)    1,100,160 
95,000   
AAA
  York GO, AMBAC-Insured, 8.875% due 6/1/06 (c)    99,039 

   
      13,178,635 

 
Hospitals — 9.3%        
1,000,000   
BBB
  Hazleton Health Services Authority, Hospital Revenue,      
   
     St. Joseph's Medical Center, 6.200% due 7/1/26    914,140 
1,000,000   
A+
  Horizon Hospital System Authority, Hospital Revenue,      
   
     Horizon Hospital Systems Inc. , 6.350% due 5/15/26    1,045,940 
1,000,000   
AA
  Mifflin County Hospital Authority Revenue, Radian-Insured,      
   
     6.200% due 7/1/30    1,098,120 
1,000,000   
A+
  Pennsylvania State Higher Education Facilities Authority     
   
 
   Revenue, UPMC Health Systems, Series A, 6.000%
   
   
 
   due 1/15/31 
  1,091,760 
300,000   
A-1+
  Philadelphia Hospitals & Higher Education Facilities Authority     
   
 
   Revenue, (Childrens Hospital Project), Series C, 2.300% 
   
   
 
   due 4/1/05 (f) 
  300,000 
525,000   
AA
  Potter County Hospital Authority Revenue, Charles Cole     
   
 
   Memorial Hospital, Radian-Insured, 6.050% due 8/1/24 
  545,822 

See Notes to Financial Statements.

27   Smith Barney Muni Funds   |   2005 Annual Report



Schedules of Investments (continued) 
 
March 31, 2005 


PENNSYLVANIA PORTFOLIO

FACE             
AMOUNT    RATING(a)   
SECURITY
  VALUE 

Hospitals — 9.3% (continued)     
$1,075,000 
  BBB-   
Puerto Rico Industrial, Tourist, Educational, Medical & 
   
     
   Environmental Control Facilities, (Ryder Memorial
   
         Hospital Project), Series A, 6.700% due 5/1/24  $  1,083,965 
1,000,000 
  A    St. Mary's Hospital Authority Revenue, Catholic Health East,      
           Series B, 5.500% due 11/15/24    1,059,660 

            7,139,407 

 
Housing: Single-Family — 2.7%     
        Allegheny County, Residential Finance Authority, Single-Family     
           Mortgage Revenue, GNMA-Collateralized:     
665,000 
  Aaa*           Series FF-2, 6.000% due 11/1/31(g)    683,627 
780,000 
  Aaa*           Series II-2, 5.900% due 11/1/32 (g)    807,994 
610,000 
  AAA    Puerto Rico Housing, Bank & Finance Agency, Single-Family     
           Mortgage Revenue, Affordable Housing Mortgage, Portfolio I,      
           FHLMC/FNMA/GNMA-Collateralized, 6.250% due 4/1/29 (g)    622,688 

            2,114,309 

 
Industrial Development — 4.7%     
1,000,000 
  BBB+    Allegheny County IDA Revenue, Environmental     
         Improvement, USX Corp. , Series A, 6.700% due 12/1/20    1,017,830 
500,000 
  AAA    Philadelphia Authority for IDR, Series B, AMBAC-Insured,      
         5.250% due 7/1/31    523,400 
1,000,000 
  AAA    Philadelphia Authority for Industrial Development Lease     
         Revenue, Series B, FSA-Insured, 5.500% due 10/1/19    1,086,140 
1,000,000 
  AAA    Philadelphia Redevelopment Authority Revenue, Neighborhood     
           Transformation, Series C, FGIC-Insured, 5.000% due 4/15/30    1,028,590 

            3,655,960 

 
Life Care — 7.0%         
1,260,000 
  AA    Erie County Hospital Authority Health Facilities Revenue,      
     
   (St. Mary's Home Project), Radian-Insured, 6.000%
   
         due 8/15/23 (b)    1,363,005 
1,100,000 
  A-   
Lancaster County Hospital Authority Revenue, (Willow 
   
     
   Valley Retirement Project), 5.875% due 6/1/31 (b) 
  1,143,120 
1,650,000 
  NR    Lancaster County IDA Revenue, (Garden Spot Village Project),      
         Series A, 7.625% due 5/1/31 (b)    1,789,904 
500,000 
  NR    Montgomery County Higher Education & Health Authority     
     
   Revenue, Temple Continuing Care Center, 6.750%
   
         due 7/1/29 (h)    15,000 
1,000,000 
  AA    Northampton County IDA Revenue, (Moravian Hall Square     
           Project), Radian-Insured, 5.500% due 7/1/19    1,072,950 

            5,383,979 


See Notes to Financial Statements.

28   Smith Barney Muni Funds   |   2005 Annual Report



Schedules of Investments (continued) 
 
March 31, 2005 


PENNSYLVANIA PORTFOLIO

FACE             
AMOUNT 
  RATING(a)   
SECURITY
  VALUE 

Miscellaneous — 9.6%         
$500,000    A-†    Allegheny County Redevelopment Authority, Tax Increment     
           Revenue, (Waterfront Project), Series A, 6.300%     
           due 12/15/18  $  549,930 
1,500,000    NR   
Dauphin County General Authority, Office & Package 
   
           Riverfront Office, 6.000% due 1/1/25 (b)    1,339,155 
1,000,000    AAA    Delaware Valley Regional Finance Authority, Local Government     
           Revenue, Series A, AMBAC-Insured, 5.500% due 8/1/28 (b)    1,135,600 
200,000    AAA   
Emmaus General Authority Revenue, FSA-Insured,  
   
           2.290% due 4/6/05 (f)    200,000 
1,560,000    NR   
New Morgan Municipal Authority Office Revenue,  
   
       
   (Commonwealth Office Project), Series A, 6.500%
   
           due 6/1/25 (b)    1,585,865 
2,000,000    AAA   
Philadelphia Municipal Authority Revenue, Series B,  
   
           FSA-Insured, 5.250% due 11/15/17 (b)    2,153,340 
600,000    B+   
Puerto Rico Industrial, Tourist, Educational, Medical & 
   
       
   Environmental Control Facilities, (San Lucas & Cristo
   
           Project), Series A, 5.750% due 6/1/19    445,566 

            7,409,456 

 
Pollution Control — 4.6%     
1,000,000    BBB   
Bradford County IDA, Solid Waste Disposal Revenue,  
   
           (International Paper Co. ), Series A, 6.600% due 3/1/19 (g)    1,021,150 
1,000,000    BBB    Delaware County IDA, Resource Recovery Facility Revenue,      
           Series A, 6.200% due 7/1/19    1,037,610 
1,000,000    BB-    New Morgan IDA, Solid Waste Disposal Revenue, (New     
           Morgan Landfill Co. , Inc. Project), 6.500% due 4/1/19 (g)    986,640 
500,000    BBB-    Pennsylvania Economic Development Financing Authority,      
       
   Resource Recovery Revenue, (Colver Project), Series D,
   
           7.150% due 12/1/18 (g)    511,310 

            3,556,710 

 
Pre-Refunded (e) — 5.7%     
500,000    AAA    Allegheny County Hospital Development Authority Revenue,      
       
   General Hospital Project, Series A, MBIA-Insured,
   
           (Call 9/1/07 @ 100), 6.250% due 9/1/20 (d)    539,480 
1,000,000    Aaa*   
Erie Sewer Authority, Sewer Revenue, MBIA-Insured,  
   
           (Call 6/1/10 @ 100), 6.000% due 6/1/21    1,128,000 
1,000,000    AAA    Harrisburg Authority, Resource Recovery Facility Revenue,      
       
   Series A, FSA-Insured, (Call 9/1/10 @ 100), 5.500%
   
           due 9/1/25    1,105,990 
1,300,000    NR    Harrisburg Redevelopment Authority, First Mortgage-Office     
           Building, (Call 5/15/12 @ 100), 6.750% due 5/15/25 (b)    1,505,920 
65,000    Aaa*    Philadelphia Hospital Authority Revenue, (United Hospital Inc.      
           Project), (Call 7/1/05 @ 100), 10.875% due 7/1/08    66,306 

            4,345,696 


See Notes to Financial Statements.

29   Smith Barney Muni Funds   |   2005 Annual Report



Schedules of Investments (continued) 
 
March 31, 2005 


PENNSYLVANIA PORTFOLIO

FACE           
AMOUNT    RATING(a)    SECURITY  VALUE 

Transportation — 13.1%     
        Delaware River Joint Toll Bridge Commission, Bridge Revenue:   
$1,000,000 
  A-       5.250% due 7/1/18  $
1,065,250 
1,660,000 
  AAA       5.000% due 7/1/25 (b) 
1,739,879 
     
Delaware River Port Authority Pennsylvania & New Jersey,
 
         RITES, FSA-Insured: 
1,500,000 
  AAA          PA — 964, 8.076% due 1/1/18 (b)(i) 
1,793,040 
1,875,000 
  AAA            PA — 965, 8.076% due 1/1/17 (b)(i) 
2,257,688 
     
Pennsylvania State Turnpike Commission, AMBAC-Insured:
 
1,500,000 
  AAA       5.000% due 7/15/21 (b) 
1,573,695 
1,500,000 
  AAA       5.500% due 7/15/32 (b) 
1,622,400 

         
10,051,952 

 
Water & Sewer — 2.5%   
1,750,000 
  AAA    Allegheny County Sanitation Authority, Sewer Revenue,  
           MBIA-Insured, 5.375% due 12/1/17 
1,911,315 

        TOTAL INVESTMENTS — 98.6% (Cost — $72,822,661**) 
75,895,682 
        Other Assets in Excess of Liabilities — 1.4% 
1,076,018 

        TOTAL NET ASSETS — 100.0%  $
76,971,700 


(a)
All ratings are by Standard & Poor's Ratings Service, except for those identified by an asterisk (*) or a dagger (†), are rated by Moody's Investors Service or Fitch Ratings, respectively.
 
(b)
All or a portion of this security is segregated for open futures contracts.
 
(c)
Bonds are escrowed to maturity with government securities and are considered by the investment manager to be triple-A rated even if the issuer has not applied for new ratings.
 
(d)
All or a portion of this security is held as collateral for open futures contracts.
 
(e)
Pre-Refunded bonds are escrowed with government securities and are considered by the investment manager to be triple-A rated even if the issuer has not applied for new ratings.
 
(f)
Variable rate demand obligation — payable at par on demand at any time on no more than seven days notice. The coupon rate listed represents the current rate at the period end. The due dates on these securities reflect the next interest rate reset date or, when applicable, the maturity date.
 
(g)
Income from this issue is considered a preference item for purposes of calculating the alternative minimum tax.
 
(h)
Security is currently in default.
 
(i)
Residual interest tax-exempt securities — coupon varies inversely with level of short-term tax exempt interest rates.
 
** Aggregate cost for federal income tax purposes is $72,809,680.
   
  See pages 31 through 33 for definitions of ratings and certain abbreviations.

 

 

See Notes to Financial Statements.

30   Smith Barney Muni Funds   |   2005 Annual Report



Bond Ratings (unaudited)

The definitions of the applicable rating symbols are set forth below:

Standard & Poor’s Ratings Service (“Standard & Poor’s” ) — Ratings from “AA” to “CCC” may be modified by the addition of a plus (+) or minus (–) sign to show relative standings within the major rating categories.

AAA  — 
Bonds rated “AAA” have the highest rating assigned by Standard & Poor’s. Capacity to 
   
pay interest and repay principal is extremely strong.  
     
AA  — 
Bonds rated “AA” have a very strong capacity to pay interest and repay principal and differ 
   
from the highest rated issues only in a small degree.  
     
A  — 
Bonds rated “A” have a strong capacity to pay interest and repay principal although they 
   
are somewhat more susceptible to the adverse effects of changes in circumstances and 
   
economic conditions than bonds in higher rated categories.  
     
BBB  — 
Bonds rated “BBB” are regarded as having an adequate capacity to pay interest and repay 
   
principal. Whereas they normally exhibit adequate protection parameters, adverse 
   
economic conditions or changing circumstances are more likely to lead to a weakened 
   
capacity to pay interest and repay principal for bonds in this category than in higher rated 
   
categories.  
     
BB, B  — 
Bonds rated “BB, ” “B” and “CCC” are regarded, on balance, as predominantly specula- 
and CCC   
tive with respect to the issuer’s capacity to pay interest and repay principal in accordance 
   
with the terms of the obligation. “BB” indicates the lowest degree of speculation than 
   
“B, ” and “CCC” the highest degree of speculation. While such bonds will likely have some 
   
quality and protective characteristics, these are outweighed by large uncertainties or major 
   
risk exposures to adverse conditions.  

Moody’s Investors Service (“Moody’s” ) — Numerical modifiers 1, 2, and 3 may be applied to each generic rating from “Aa” to “B” , where 1 is the highest and 3 the lowest rating within its generic category.

Aaa  — 
Bonds rated “Aaa” are judged to be of the best quality. They carry the smallest degree of 
   
investment risk and are generally referred to as “gilt edge. ” Interest payments are protected 
   
by a large or by an exceptionally stable margin and principal is secure. While the various 
   
protective elements are likely to change, such changes as can be visualized are most unlikely 
   
to impair the fundamentally strong position of such issues.  
     
Aa  — 
Bonds rated “Aa” are judged to be of high quality by all standards. Together with the “Aaa”  
   
group they comprise what are generally known as high grade bonds. They are rated lower 
   
than the best bonds because margins of protection may not be as large as in “Aaa” securities 
   
or fluctuation of protective elements may be of greater amplitude or there may be other 
   
elements present which make the long-term risks appear somewhat larger than in “Aaa”  
   
securities.  
     
A  — 
Bonds rated “A” possess many favorable investment attributes and are to be considered 
   
as upper medium grade obligations. Factors giving security to principal and interest are 
   
considered adequate but elements may be present which suggest a susceptibility to 
   
impairment some time in the future.  
     
Baa  — 
Bonds rated “Baa” are considered as medium grade obligations, i. e. , they are neither highly 
   
protected nor poorly secured. Interest payments and principal security appear adequate 
   
for the present but certain protective elements may be lacking or may be characteristically 
   
unreliable over any great length of time. Such bonds lack outstanding investment 
   
characteristics and in fact have speculative characteristics as well.  
     
Ba  — 
Bonds rated “Ba” are judged to have speculative elements; their future cannot be 
   
considered as well assured. Often the protection of interest and principal payments may 
   
be very moderate, and thereby not well safeguarded during both good and bad times over 
   
the future. Uncertainty of position characterizes in this class.  
     
B  — 
Bonds rates “B” generally lack characteristics of desirable investments. Assurance of 
   
interest and principal payment or of maintenance of other terms of the contract over any 
   
long period of time may be small.  

31   Smith Barney Muni Funds   |   2005 Annual Report



Bond Ratings (unaudited) (continued)

Fitch Ratings (“Fitch” ) — Ratings from “A” to “BBB” may be modified by the addition of a plus (+) or a minus (-) sign to show relative standings within the major ratings categories.

AAA  — 
Bonds rated “AAA” by Fitch have the lowest expectation of credit risk. The obligor has 
   
an exceptionally strong capacity for timely payment of financial commitments which is 
   
highly unlikely to be adversely affected by foreseeable events.  
     
AA  — 
Bonds rated “AA” are considered to be investment-grade and of very high credit quality.  
   
The obligator’s ability to pay interest and/or dividends and repay principal is very strong.  
     
A  — 
Bonds rated “A” have a low expectation of credit risk. The capacity for timely payment 
   
of financial commitments is considered strong. This capacity may, nevertheless, be more 
   
vulnerable to changes in circumstatnces or in economic conditions than is the case for 
   
higher ratings.  
     
BBB  — 
Bonds rated “BBB” currently have a low expectation of credit risk. The capacity for timely 
   
payment of financial commitments is considered to be adequate. Adverse changes in 
   
economic conditions and circumstances, however, are more likely to impair this capacity.  
   
This is the lowest investment grade category assigned by Fitch.  
     
NR  —  Indicates that the bond is not rated by Standard & Poor’s, Moody’s or Fitch.  


Short-Term Security Ratings (unaudited)
SP-1  — 
Standard & Poor’s highest rating indicating very strong or strong capacity to pay principal 
   
and interest; those issues determined to possess overwhelming safety characteristics are 
   
denoted with a plus (+) sign.  
     
A-1  — 
Standard & Poor’s highest commercial paper and variable rate demand obligation 
   
(“VRDO” ) rating indicating that the degree of safely regarding timely payment is either 
   
overwhelming or very strong; those issues determined to possess overwhelming safety 
   
characteristics are denoted with a (+) sign.  
     
P-1  — 
Moody’s highest rating for commercial paper and for VRDO prior to the advent of the 
   
VMIG 1 rating.  
     
VMIG 1  —  Moody’s highest rating for issues having demand feature — VRDO.  

32   Smith Barney Muni Funds   |   2005 Annual Report



Abbreviations* (unaudited)
ACA    — American Capital Assurance    ISO    — Independent System Operator 
AIG    — American International Guaranty    LOC    — Letter of Credit 
AMBAC    — Ambac Assurance Corporation    MBIA    — Municipal Bond Investors 
AMT    — Alternative Minimum Tax           Assurance Corporation 
BAN    — Bond Anticipation Notes    MERLOT   — Municipal Bond Investors 
BIG    — Bond Investors Guaranty           Assurance Corporation 
CDA    — Community Development    MFH    — Multi-Family Housing 
       Authority    MSTC    — Municipal Securities Trust 
CGIC    — Capital Guaranty Insurance           Certificates 
       Company    MVRICS    — Municipal Variable Rate Inverse 
CONNIE    — College Construction Loan           Coupon Security 
   LEE 
       Insurance Association    PART    — Partnership Structure 
COP    — Certificate of Participation    PCFA    — Pollution Control Finance 
CSD    — Central School District           Authority 
CTFS    — Certificates    PCR    — Pollution Control Revenue 
DFA    — Development Finance Agency    PFA    — Public Finance Authority 
EDA    — Economic Development Authority    PSFG    — Permanent School Fund 
EFA    — Educational Facilities Authority           Guaranty 
ETM    — Escrowed to Maturity    Q-SBLF    — Qualified School Bond 
FGIC    — Financial Guaranty Insurance           Loan Fund 
       Company    Radian    — Radian Asset Assurance 
FHA    — Federal Housing Administration    RAN    — Revenue Anticipation Notes 
FHLMC    — Federal Home Loan Mortgage    RAW    — Revenue Anticipation Warrants 
       Corporation    RDA    — Redevelopment Agency 
FLAIRS    — Floating Adjustable Interest Rate    RIBS    — Residual Interest Bonds 
       Securities    RITES    — Residual Interest Tax-Exempt 
FNMA    — Federal National Mortgage           Securities 
       Association    SPA    — Standby Bond Purchase 
FRTC    — Floating Rate Trust Certificates           Agreement 
FSA    — Financial Security Assurance    SFH    — Single-Family Housing 
GIC    — Guaranteed Investment Contract    SWAP    — Swap Structure 
GNMA    — Government National Mortgage    SYCC    — StructuredYield Curve Certificate 
       Association    TAN    — Tax Anticipation Notes 
GO    — General Obligation    TCRS    — Transferrable Custodial Receipts 
HDC    — Housing Development    TECP    — Tax-Exempt Commercial Paper 
       Corporation    TOB    — Tender Option Bonds 
HEFA    — Health & Educational Facilities    TRAN    — Tax and Revenue Anticipation 
       Authority           Notes 
HFA    — Housing Finance Authority    UFSD    — Unified Free School District 
IBC    — Insured Bond Certificates    UHSD    — Unified High School District 
IDA    — Industrial Development Authority    USD    — Unified School District 
IDB    — Industrial Development Board    VA    — Veterans Administration 
IDR    — Industrial Development Revenue    VRDD    — Variable Rate Daily Demand 
IFA    — Infastructure Finance Agency    VRDO    — Variable Rate Demand Obligation 
INFLOS    — Inverse Floaters    VRWE    — Variable Rate Wednesday Demand 
ISD    — Independent School District    XLCA    — XL Capital Assurance 


* Abbreviations may or may not appear in the schedule of investments.

33   Smith Barney Muni Funds   |   2005 Annual Report



Statements of Assets and Liabilities 
 
March 31, 2005 


 
Georgia
Pennsylvania
 
Portfolio
Portfolio

ASSETS:       
   Investments, at value (Cost—$50,655,829 and $72,822,661) 
$
54,590,114    
$
75,895,682  
   Cash  3,290     71,536  
   Receivable for securities sold  1,840,719     100,000  
   Interest receivable  973,668     1,181,697  
   Receivable for Fund shares sold  500,000     250  
   Prepaid expenses  4,047     2,925  

   Total Assets  57,911,838     77,252,090  

LIABILITIES:       
   Payable for securities purchased  1,042,260      
   Payable to broker—variation margin on open futures contracts  116,875     171,875  
   Management fees payable  12,281     29,514  
   Payable for Fund shares reaquired      13,086  
   Distribution plan fees payable  6,410     12,116  
   Trustees’ fees payable  5,431     15,283  
   Transfer agency service fees payable  2,695     8,967  
   Accrued expenses  35,557     29,549  

   Total Liabilities  1,221,509     280,390  

Total Net Assets 
$
56,690,329    
$
76,971,700  

NET ASSETS:       
   Par value of shares of beneficial interest (Note 6) 
$
4,463    
$
6,047  
   Capital paid in excess of par value  57,231,033     78,724,037  
   Undistributed (overdistributed) net investment income  16,128     (5,066 ) 
   Accumulated net realized loss from investment       
         transactions and futures contracts  (4,568,862 )    (4,931,027 ) 
   Net unrealized appreciation of investments and       
         futures contracts  4,007,567     3,177,709  

Total Net Assets 
$
56,690,329    
$
76,971,700  

Shares Outstanding:       
   Class A  3,238,600     3,004,917  

   Class B  582,330     2,107,829  

   Class C  642,533     934,461  

Net Asset Value:       
   Class A (and redemption price)    $12.71       $12.75  

   Class B*    $12.68       $12.71  

   Class C*    $12.67       $12.70  

Maximium Public Offering Price Per Share:       
   Class A (based on a maximum sales charge of 4.00%)    $13.24       $13.28  


* Redemption price is NAV of Class B and Class C shares reduced by a 4.50% and 1.00% CDSC, respectively, if shares are redeemed within one year from purchase payment (See Note 2).
 

See Notes to Financial Statements.

34   Smith Barney Muni Funds   |   2005 Annual Report



Statements of Operations 
 
For the Year Ended March 31, 2005 


   
Georgia
Pennsylvania
   
Portfolio
Portfolio

INVESTMENT INCOME:         
   Interest    $ 3,064,227     $ 4,180,433  

 
EXPENSES:         
   Management fees (Note 2)    254,203     350,021  
   Distribution plan fees (Notes 2 and 4)    176,125     332,020  
   Audit and legal    32,831     32,580  
   Shareholder communications (Note 4)    28,874     40,998  
   Custody    23,927     24,709  
   Transfer agency service fees (Notes 2 and 4)    15,530     29,878  
   Registration fees    10,367     3,815  
   Trustees’ fees    798     1,350  
   Other    8,308     7,751  

   Total Expenses    550,963     823,122  
   Less: Management fee waiver and/or expense         
         reimbursement (Notes 2 and 8)    (13,707 )    (7,308 ) 

   Net Expenses    537,256     815,814  

Net Investment Income    2,526,971     3,364,619  

REALIZED AND UNREALIZED LOSS ON INVESTMENTS 
       
   AND FUTURES CONTRACTS (NOTES 1 AND 3):         
   Realized Loss From:         
         Investment transactions    (247,725 )    (490,769 ) 
         Future contracts    (808,028 )    (1,184,140 ) 

   Net Realized Loss    (1,055,753 )    (1,674,909 ) 

   Net Change in Unrealized Appreciation/Depreciation of         
         Investments and Futures contracts    (708,830 )    (164,230 ) 

Net Loss on Investments and Futures Contracts    (1,764,583 )    (1,839,139 ) 

Increase in Net Assets From Operations    $ 762,388     $ 1,525,480  


See Notes to Financial Statements.

35   Smith Barney Muni Funds   |   2005 Annual Report



Statements of Changes in Net Assets 


   
For the Years Ended March 31,
Georgia Portfolio   
2005
 
2004

OPERATIONS:         
   Net investment income    $ 2,526,971     $ 2,872,716  
   Net realized loss    (1,055,753 )    (1,142,119 ) 
   Net change in unrealized appreciation/depreciation    (708,830 )    630,120  

   Increase in Net Assets From Operations    762,388     2,360,717  

DISTRIBUTIONS TO SHAREHOLDERS FROM         
   (NOTES 1 AND 5):         
   Net investment income    (2,518,956 )    (2,879,111 ) 

   Decrease in Net Assets From Distributions         
         to Shareholders    (2,518,956 )    (2,879,111 ) 

FUND SHARE TRANSACTIONS (NOTE 6):         
   Net proceeds from sale of shares    7,925,963     9,352,338  
   Net asset value of shares issued for reinvestment of distributions    963,440     1,145,305  
   Cost of shares reacquired    (11,570,594 )    (11,730,255 ) 

   Decrease in Net Assets From Fund Share Transactions    (2,681,191 )    (1,232,612 ) 

Decrease in Net Assets    (4,437,759 )    (1,751,006 ) 
NET ASSETS:         
   Beginning of year    61,128,088     62,879,094  

   End of year*    $ 56,690,329     $ 61,128,088  

* Includes undistributed net investment income of:      $16,128       $31,063  


See Notes to Financial Statements.

36   Smith Barney Muni Funds   |   2005 Annual Report



Statements of Changes in Net Assets (continued)
   
For the Years Ended March 31,
Pennsylvania Portfolio   
2005
2004

OPERATIONS:         
   Net investment income    $ 3,364,619     $ 3,847,400  
   Net realized loss    (1,674,909 )    (971,351 ) 
   Net change in unrealized appreciation and depreciation    (164,230 )    189,503  

   Increase in Net Assets From Operations    1,525,480     3,065,552  

DISTRIBUTIONS TO SHAREHOLDERS FROM         
   (NOTES 1 AND 5):         
   Net investment income    (3,358,579 )    (3,843,880 ) 
   In excess of net investment income    (42,124 )    (86,608 ) 

   Decrease in Net Assets From Distributions         
         to Shareholders    (3,400,703 )    (3,930,488 ) 

FUND SHARE TRANSACTIONS (NOTE 6):         
   Net proceeds from sale of shares    12,093,901     20,326,781  
   Net asset value of shares issued for reinvestment of distributions    1,731,929     2,124,868  
   Cost of shares reacquired    (19,600,170 )    (23,303,128 ) 

   Decrease in Net Assets From Fund Share Transactions    (5,774,340 )    (851,479 ) 

Decrease in Net Assets    (7,649,563 )    (1,716,415 ) 
NET ASSETS:         
   Beginning of year    84,621,263     86,337,678  

   End of year*    $ 76,971,700     $ 84,621,263  

* Includes undistributed (overdistributed) net investment income of: 
    $(5,066 )      $9,577  


See Notes to Financial Statements.

37   Smith Barney Muni Funds   |   2005 Annual Report



Financial Highlights

For a share of each class of beneficial interest outstanding throughout each year ended March 31:

       
Class A Shares
     

Georgia Portfolio(1)    2005     2004     2003     2002     2001  

Net Asset Value, Beginning of Year    $ 13.10     $ 13.22     $ 12.79     $ 13.08     $ 12.40  

Income (Loss) From Operations:                     
   Net investment income    0.60     0.63     0.66     0.65 (2)    0.64  
   Net realized and unrealized gain (loss) 
  (0.39 )    (0.12 )    0.42     (0.29 )(2)   0.69  

Total Income From Operations    0.21     0.51     1.08     0.36     1.33  

Less Distributions From:                     
   Net investment income    (0.60 )    (0.63 )    (0.65 )    (0.65 )    (0.65 ) 
   In excess of net investment income 
              (0.00 )*     

Total Distributions    (0.60 )    (0.63 )    (0.65 )    (0.65 )    (0.65 ) 

Net Asset Value, End of Year    $ 12.71     $ 13.10     $ 13.22     $ 12.79     $ 13.08  

Total Return(3)    1.64 %    3.92 %    8.54 %    2.76 %    11.02 % 

Net Assets, End of Year (000s)    $ 41,166     $ 41,325     $ 41,740     $ 42,917     $ 45,594  

Ratios to Average Net Assets:                     
   Expenses(4)    0.79
%(5)
   
0.71
%    
0.72
%    
0.75
%    
0.75
%
   Net investment income    4.64     4.74     4.98     4.97 (2)    5.08  

Portfolio Turnover Rate    16 %    23 %    19 %    43 %    35 % 


(1)
Per share amounts have been calculated using the monthly average shares method.
 
(2)
Effective April 1, 2001, the Fund adopted a change in the accounting method that requires the Fund to amortize premiums and accrete all discounts. Without the adoption of this change, for the year ended March 31, 2002, the ratio of net investment income to average net assets would have been 4.95%. In addition, the impact of this change to net investment income and net realized and unrealized loss per share was less than $0.01. Per share information, ratios and supplemental data for the periods prior to April 1, 2001 have not been restated to reflect this change in presentation.
 
(3)
Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower.
 
(4)
As a result of a voluntary expense limitation, the ratio of expenses to average net assets will not exceed 0.80%.
 
(5)
The investment manager voluntarily waived a portion of its management fee for the year ended March 31, 2005. If such fees were not voluntarily waived, the actual expense ratio would have been 0.80%.
 
* Amount represents less than $0.01 per share.

See Notes to Financial Statements.

38   Smith Barney Muni Funds   |   2005 Annual Report



Financial Highlights (continued)

For a share of each class of beneficial interest outstanding throughout each year ended March 31:

       
Class B Shares
     

Georgia Portfolio(1)    2005     2004     2003     2002     2001  

Net Asset Value, Beginning of Year    $ 13.07     $ 13.19     $ 12.76     $ 13.07     $ 12.40  

Income (Loss) From Operations:                     
   Net investment income    0.54     0.55     0.58     0.58 (2)    0.58  
   Net realized and unrealized gain (loss) 
  (0.40 )    (0.11 )    0.43     (0.30 )(2)   0.68  

Total Income From Operations    0.14     0.44     1.01     0.28     1.26  

Less Distributions From:                     
   Net investment income    (0.53 )    (0.56 )    (0.58 )    (0.59 )    (0.59 ) 
   In excess of net investment income 
              (0.00 )*     

Total Distributions    (0.53 )    (0.56 )    (0.58 )    (0.59 )    (0.59 ) 

Net Asset Value, End of Year    $ 12.68     $ 13.07     $ 13.19     $ 12.76     $ 13.07  

Total Return(3)    1.06 %    3.36 %    8.03 %    2.12 %    10.39 % 

Net Assets, End of Year (000s)    $ 7,385     $ 10,246     $ 12,265     $ 11,544     $ 11,154  

Ratios to Average Net Assets:                     
   Expenses(4)    1.29
%(5)
    1.27 %   1.26 %    1.29 %    1.30 % 
   Net investment income    4.13     4.19     4.45     4.42 (2)    4.56  

Portfolio Turnover Rate    16 %    23 %    19 %    43 %    35 % 


(1)
Per share amounts have been calculated using the monthly average shares method.
 
(2)
Effective April 1, 2001, the Fund adopted a change in the accounting method that requires the Fund to amortize premiums and accrete all discounts. Without the adoption of this change, for the year ended March 31, 2002, the ratio of net investment income to average net assets would have been 4.41%. In addition, the impact of this change to net investment income and net realized and unrealized loss per share was less than $0.01. Per share information, ratios and supplemental data for the periods prior to April 1, 2001 have not been restated to reflect this change in presentation.
 
(3)
Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower.
 
(4)
As a result of a voluntary expense limitation, the ratio of expenses to average net assets will not exceed 1.30%.
 
(5)
The investment manager voluntarily waived a portion of its management fee and reimbursed expenses for the year ended March 31, 2005. If such fees were not voluntarily waived and expenses not reimbursed, the actual expense ratio would have been 1.36%.
 
* Amount represents less than $0.01 per share.

See Notes to Financial Statements.

39   Smith Barney Muni Funds   |   2005 Annual Report



Financial Highlights (continued)

For a share of each class of beneficial interest outstanding throughout each year ended March 31:

       
Class C Shares(2)
     

Georgia Portfolio(1)    2005     2004     2003     2002     2001  

Net Asset Value, Beginning of Year    $ 13.05     $ 13.17     $ 12.75     $ 13.05     $ 12.39  

Income (Loss) From Operations:                     
   Net investment income    0.53     0.55     0.57     0.57 (3)    0.57  
   Net realized and unrealized gain (loss) 
  (0.39 )    (0.12 )    0.42     (0.29 )(3)   0.67  

Total Income From Operations    0.14     0.43     0.99     0.28     1.24  

Less Distributions From:                     
   Net investment income    (0.52 )    (0.55 )    (0.57 )    (0.58 )    (0.58 ) 
   In excess of net investment income 
              (0.00 )*     

Total Distributions    (0.52 )    (0.55 )    (0.57 )    (0.58 )    (0.58 ) 

Net Asset Value, End of Year    $ 12.67     $ 13.05     $ 13.17     $ 12.75     $ 13.05  

Total Return(4)    1.09 %    3.31 %    7.90 %    2.15 %    10.26 % 

Net Assets, End of Year (000s)    $ 8,139     $ 9,557     $ 8,874     $ 8,205     $ 7,460  

Ratios to Average Net Assets:                     
   Expenses(5)    1.34 %(6)   1.32 %    1.33 %    1.34 %    1.35 % 
   Net investment income    4.08     4.14     4.38     4.39 (3)    4.48  

Portfolio Turnover Rate    16 %    23 %    19 %    43 %    35 % 


(1)
Per share amounts have been calculated using the monthly average shares method.
 
(2)
On April 29, 2004, Class L shares were renamed Class C shares.
 
(3)
Effective April 1, 2001, the Fund adopted a change in the accounting method that requires the Fund to amortize premiums and accrete all discounts. Without the adoption of this change, for the year ended March 31, 2002, the ratio of net investment income to average net assets would have been 4.37%. In addition, the impact of this change to net investment income and net realized and unrealized loss per share was less than $0.01. Per share information, ratios and supplemental data for the periods prior to April 1, 2001 have not been restated to reflect this change in presentation.
 
(4)
Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower.
 
(5)
As a result of a voluntary expense limitation, the ratio of expenses to average net assets will not exceed 1.35%.
 
(6)
The investment manager voluntarily waived a portion of its management fee and reimbursed expenses for the year ended March 31, 2005. If such fees were not voluntarily waived and expenses not reimbursed, the actual expense ratio would have been 1.40%.
 
* Amount represents less than $0.01 per share.

See Notes to Financial Statements.

40   Smith Barney Muni Funds   |   2005 Annual Report



Financial Highlights (continued)

For a share of each class of beneficial interest outstanding throughout each year ended March 31:

        Class A Shares      

Pennsylvania Portfolio(1)    2005     2004     2003     2002     2001  

Net Asset Value, Beginning of Year    $ 13.05     $ 13.18     $ 12.79     $ 12.89     $ 12.18  

Income (Loss) From Operations:                     
   Net investment income    0.59     0.63     0.67     0.69 (2)    0.69  
   Net realized and unrealized gain (loss) 
  (0.29 )    (0.12 )    0.40     (0.09 )(2)   0.71  

Total Income From Operations    0.30     0.51     1.07     0.60     1.40  

Less Distributions From:                     
   Net investment income    (0.59 )    (0.63 )    (0.67 )    (0.69 )    (0.69 ) 
   In excess of net investment income 
  (0.01 )    (0.01 )    (0.01 )    (0.01 )     

Total Distributions    (0.60 )    (0.64 )    (0.68 )    (0.70 )    (0.69 ) 

Net Asset Value, End of Year    $ 12.75     $ 13.05     $ 13.18     $ 12.79     $ 12.89  

Total Return(3)    2.39 %    3.90 %    8.49 %    4.69 %    11.84 % 

Net Assets, End of Year (000s)    $ 38,319     $ 38,126     $ 34,099     $ 35,370     $ 31,203  

Ratios to Average Net Assets:                     
   Expenses(4)    0.76
%(5)
    0.72 %   0.66
%(5)
    0.50
%(5)
    0.54 %(5)
   Net investment income    4.62     4.74     5.07     5.34 (2)    5.55  

Portfolio Turnover Rate    10 %    23 %    33 %    49 %    34 % 


(1)
Per share amounts have been calculated using the monthly average shares method.
 
(2)
Effective April 1, 2001, the Fund adopted a change in the accounting method that requires the Fund to amortize premiums and accrete all discounts. Without the adoption of this change, for the year ended March 31, 2002, the ratio of net investment income to average net assets would have been 5.33%. In addition, the impact of this change to net investment income and net realized and unrealized loss per share was less than $0.01. Per share information, ratios and supplemental data for the periods prior to April 1, 2001 have not been restated to reflect this change in presentation.
 
(3)
Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower.
 
(4)
As a result of a voluntary expense limitation, the ratio of expenses to average net assets will not exceed 0.80%.
 
(5)
The investment manager voluntarily waived a portion of its management fee for the years ended March 31, 2005, 2003, 2002 and 2001. If such fees were not voluntarily waived, the actual expense ratios would have been 0.76%, 0.72%, 0.70% and 0.74%, respectively.
 

See Notes to Financial Statements.

41   Smith Barney Muni Funds   |   2005 Annual Report



Financial Highlights (continued)

For a share of each class of beneficial interest outstanding throughout each year ended March 31:

        Class B Shares      

Pennsylvania Portfolio(1)    2005     2004     2003     2002     2001  

Net Asset Value, Beginning of Year    $ 13.01     $ 13.14     $ 12.76     $ 12.86     $ 12.17  

Income (Loss) From Operations:                     
   Net investment income    0.52     0.55     0.59     0.62 (2)    0.62  
   Net realized and unrealized gain (loss) 
  (0.29 )    (0.11 )    0.40     (0.08 )(2)   0.70  

Total Income From Operations    0.23     0.44     0.99     0.54     1.32  

Less Distributions From:                     
   Net investment income    (0.52 )    (0.56 )    (0.60 )    (0.63 )    (0.63 ) 
   In excess of net investment income 
  (0.01 )    (0.01 )    (0.01 )    (0.01 )     

Total Distributions    (0.53 )    (0.57 )    (0.61 )    (0.64 )    (0.63 ) 

Net Asset Value, End of Year    $ 12.71     $ 13.01     $ 13.14     $ 12.76     $ 12.86  

Total Return(3)    1.84 %    3.37 %    7.89 %    4.22 %    11.15 % 

Net Assets, End of Year (000s)    $ 26,788     $ 33,388     $ 39,184     $ 36,108     $ 29,894  

Ratios to Average Net Assets:                     
   Expenses(4)    1.29
%(5)
    1.26 %   1.20
%(5)
    1.03
%(5)
    1.08 %(5)
   Net investment income    4.09     4.21     4.54     4.80 (2)    5.01  

Portfolio Turnover Rate    10 %    23 %    33 %    49 %    34 % 


(1)
Per share amounts have been calculated using the monthly average shares method.
 
(2)
Effective April 1, 2001, the Fund adopted a change in the accounting method that requires the Fund to amortize premiums and accrete all discounts. Without the adoption of this change, for the year ended March 31, 2002, the change to net investment income and net realized and unrealized loss and the ratio of net investment income to average net assets was less than $0.01, $0.01 and 0.01%, respectively. Per share information, ratios and supplemental data for the periods prior to April 1, 2001 have not been restated to reflect this change in presentation.
 
(3)
Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower.
 
(4)
As a result of a voluntary expense limitation, the ratio of expenses to average net assets will not exceed 1.30%.
 
(5)
The investment manager voluntarily waived a portion of its management fee for the years ended March 31, 2005, 2003, 2002 and 2001. If such fees were not voluntarily waived, the actual expense ratios would have been 1.29%, 1.25%, 1.24% and 1.28%, respectively.
 

See Notes to Financial Statements.

42   Smith Barney Muni Funds   |   2005 Annual Report



Financial Highlights (continued)

For a share of each class of beneficial interest outstanding throughout each year ended March 31:

        Class C Shares(2)      

Pennsylvania Portfolio(1)    2005     2004     2003     2002     2001  

Net Asset Value, Beginning of Year    $ 13.00     $ 13.13     $ 12.75     $ 12.85     $ 12.16  

Income (Loss) From Operations:                     
   Net investment income    0.52     0.54     0.59     0.62 (3)    0.61  
   Net realized and unrealized gain (loss) 
  (0.29 )    (0.11 )    0.40     (0.09 )(3)   0.70  

Total Income From Operations    0.23     0.43     0.99     0.53     1.31  

Less Distributions From:                     
   Net investment income    (0.52 )    (0.55 )    (0.60 )    (0.62 )    (0.62 ) 
   In excess of net investment income 
  (0.01 )    (0.01 )    (0.01 )    (0.01 )     

Total Distributions    (0.53 )    (0.56 )    (0.61 )    (0.63 )    (0.62 ) 

Net Asset Value, End of Year    $ 12.70     $ 13.00     $ 13.13     $ 12.75     $ 12.85  

Total Return(4)    1.79 %    3.32 %    7.84 %    4.16 %    11.08 % 

Net Assets, End of Year (000s)    $ 11,865     $ 13,107     $ 13,055     $ 12,472     $ 10,381  

Ratios to Average Net Assets:                     
   Expenses(5)    1.34
%(6)
    1.31 %   1.25%(6)       1.08
%(6)
    1.16 %(6)
   Net investment income    4.04     4.15     4.48     4.77 (3)    4.94  

Portfolio Turnover Rate    10 %    23 %    33 %    49 %    34 % 


(1)
Per share amounts have been calculated using the monthly average shares method.
 
(2)
On April 29, 2004, Class L shares were renamed Class C shares.
 
(3)
Effective April 1, 2001, the Fund adopted a change in the accounting method that requires the Fund to amortize premiums and accrete all discounts. Without the adoption of this change, for the year ended March 31, 2002, the ratio of net investment income to average net assets would have been 4.76%. In addition, the impact of this change to net investment income and net realized and unrealized loss per share was less than $0.01. Per share information, ratios and supplemental data for the periods prior to April 1, 2001 have not been restated to reflect this change in presentation.
 
(4)
Performance figures may reflect voluntary fee waivers and/or expense reimbursements. Past performance is no guarantee of future results. In the absence of voluntary fee waivers and/or expense reimbursements, the total return would have been lower.
 
(5)
As a result of a voluntary expense limitation, the ratio of expenses to average net assets will not exceed 1.35%.
 
(6)
The investment manager voluntarily waived a portion of its management fee for the years ended March 31, 2005, 2003, 2002 and 2001. If such fees were not voluntarily waived, the actual expense ratios would have been 1.35%, 1.31%, 1.28% and 1.36%, respectively.
 

See Notes to Financial Statements.

43   Smith Barney Muni Funds   |   2005 Annual Report



Notes to Financial Statements

1. Organization and Significant Accounting Policies

The Georgia and Pennsylvania Portfolios (“Funds”) are separate investment funds of the Smith Barney Muni Funds (“Trust”), a Massachusetts business trust, which is registered under the Investment Company Act of 1940, as amended, as an open-end non-diversified management investment company.

The following are significant accounting policies consistently followed by the Funds are in conformity with generally accepted accounting principles (“GAAP”). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ.

(a) Investment Valuation. Securities are valued at the mean between the bid and asked prices provided by an independent pricing service that are based on transactions in municipal obligations, quotations from municipal bond dealers, market transactions in comparable securities and various relationships between securities. Securities for which market quotations are not readily available or where market quotations are determined not to reflect fair value, will be valued in good faith by or under the direction of the Funds’Board of Trustees. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates value.

(b) Financial Futures Contracts. The Funds may enter into futures contracts to the extent permitted by its investment policies and objectives. Upon entering into a futures contract, each Fund is required to deposit cash or securities as initial margin. Additional securities are also segregated up to the current market value of the futures contracts. Subsequent payments, which are dependent on the daily fluctuations in the value of the underlying financial instrument, are made or received by the Funds each day (daily variation margin) and are recorded as unrealized gains or losses until the contracts are closed. When the contracts are closed, each Fund recognizes a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transactions and the Funds’basis in the contracts. The Funds enter into such contracts typically to hedge a portion of the portfolio. The risks associated with entering into futures contracts include the possibility that a change in the value of the contract may not correlate with the changes in the value of the underlying financial instruments. In addition, investing in a futures contract involves the risk that the Funds could lose more than the original margin deposit and subsequent payments required for a futures transaction.

44   Smith Barney Muni Funds   |   2005 Annual Report



Notes to Financial Statements (continued)

(c) Securities Traded on a When-Issued Basis. The Funds may trade securities on a when-issued basis. In a when-issued transaction, the securities are purchased or sold by the Funds with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Funds at the time of entering into the transaction. Purchasing such securities involves the risk of loss if the value of the securities declines prior to settlement. This transaction is subject to market fluctuations and its current value is determined in the same manner as for other securities.

(d) Portfolio Concentration. Since the Georgia and Pennsylvania Portfolios invest primarily in obligations of issuers within Georgia and Pennsylvania, respectively, each Fund is subject to possible concentration risks associated with economic, political, or legal developments or industrial or regional matters specifically affecting the respective state in which it invests.

(e) Security Transactions and Investment Income. Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. The cost of investments sold is determined by use of the specific identification method.

(f) Distributions. Distributions from net investment income for the Funds, if any, are declared and paid on a monthly basis. The Funds intend to satisfy conditions that will enable interest from municipals securities, which is exempt from federal and certain state income taxes, to retain such tax-exempt status when distributed to the shareholders of the Funds. Distributions of net realized gains, if any, are taxable and are declared at least annually. Distributions are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP. To the extent that the Funds’ current year distributions of net investment income exceed current year tax-exempt income, such excess distributions will be taxable as ordinary income to shareholders to the extent of expenses attributable to tax-exempt income.

(g) Class Accounting. Investment income, common expenses and realized/unrealized gain (loss) on investments are allocated to the various classes of the Funds on the basis of daily net assets of each class. Distribution, transfer agency services and shareholder communications fees relating to a specific class are charged directly to that class.

(h) Federal and OtherTaxes. It is the Funds’policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986,as amended, applicable to regulated investment companies. Accordingly, the Funds intend to distribute substantially all of its taxable income and net realized gains on investments, if any, to shareholders each year. Therefore, no federal income tax provision is required.

45   Smith Barney Muni Funds   |   2005 Annual Report



Notes to Financial Statements (continued)

(i) Reclassification. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. During the current year, the following reclassifications have been made:

       
Undistributed/
           
       
(Overdistributed)
 
Accumulated 
       
Net Investment
 
Net Realized 
Paid-in
Fund       
Income
 
Loss 
Capital

    (a)       
$ 
1    $  (1 ) 
Georgia Portfolio                     
    (b)    $ (22,950 )      22,950       

    (c)    42,124             (42,124 ) 
Pennsylvania Portfolio                     
    (b)    (20,683 )      20,683       


(a) Reclassifications are primarily due to book/tax differences in the treatment of various items.
 
(b) Reclassifications are primarily due to differences between book and tax accretion of discount on fixed income securities.
 
(c) Reclassifications are primarily due to a taxable overdistribution.
 

2. Management Agreement and Other Transactions with Affiliates

Smith Barney Fund Management LLC (“SBFM”), an indirect wholly-owned subsidiary of Citigroup Inc. (“Citigroup”), acts as investment manager to the Funds. The Funds pay SBFM a management fee calculated at an annual rate of 0.45% of each Fund’s respective average daily net assets. This fee is calculated daily and paid monthly.

During the year ended March 31, 2005, the Georgia Portfolio’s Class A, Class B and Class C shares had voluntary expense limitations in place of 0.80%, 1.30% and 1.35%, respectively. The Pennsylvania Portfolio’s Class A, Class B and Class C shares had voluntary expense limitations in place of 0.80%, 1.30% and 1.35%, respectively. These expense limitations can be terminated at any time by SBFM.

During the year ended March 31, 2005, SBFM waived a portion of its management fee in the amount of $4,464 and $7,308 for Georgia Portfolio and Pennsylvania Portfolio, respectively. Additionally, SBFM reimbursed certain expenses of the Georgia Portfolio in the amount of $9,243.

Citicorp Trust Bank, fsb. (“CTB”), another subsidiary of Citigroup, acts as the Funds’ transfer agent and PFPC Inc. (“PFPC”) acts as the Funds’ sub-transfer agent. CTB receives account fees and asset-based fees that vary according to the size and type of account. PFPC is responsible for shareholder recordkeeping and financial

46   Smith Barney Muni Funds   |   2005 Annual Report


 


Notes to Financial Statements (continued)

processing for all shareholder accounts and is paid by CTB. For the year ended March 31, 2005, the Funds paid transfer agent fees totaling $31,485 to CTB.

The totals for each Fund were as follows:

      Transfer 
      Agent Fees 

Georgia Portfolio        $10,740 

Pennsylvania Portfolio      20,745 


Citigroup Global Markets Inc. (“CGM”), another indirect wholly-owned subsidiary of Citigroup, acts as the Funds’ distributor.

Effective April 29, 2004, Class L shares were renamed as Class C shares.

There is a maximum sales charge of 4.00% for Class A shares. There is a contingent deferred sales charge (“CDSC”) of 4.50% on Class B shares, which applies if redemption occurs within one year from purchase payment. This CDSC declines by 0.50% the first year after purchase payment and thereafter by 1.00% per year until no CDSC is incurred. Class C shares have a 1.00% CDSC, which applies if redemption occurs within one year from purchase payment. In certain cases, Class A shares have a 1.00% CDSC, which applies if redemption occurs within one year from purchase payment. This CDSC only applies to those purchases of Class A shares, which, when combined with current holdings of Class A shares, equal or exceed $500,000 in the aggregate. These purchases do not incur a sales charge.

For the year ended March 31, 2005, CDSCs paid to CGM and sales charges received by CGM were approximately:

    Sales Charges   
CDSCs 
 
 
    Class A   
Class B 
 
Class C 

Georgia Portfolio      $44,000    
$4,000  
 
$     — 

Pennsylvania Portfolio    53,000   
32,000 
 
  1,000 


All officers and one Trustee of the Trust are employees of Citigroup or its affiliates and do not receive compensation from the Trust.

47   Smith Barney Muni Funds   |   2005 Annual Report



Notes to Financial Statements (continued)

3. Investments

During the year ended March 31, 2005, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:

     
Georgia 
  Pennsylvania 
     
Portfolio 
  Portfolio 

Purchases       
$  8,935,350 
  $  7,488,507 

Sales     
  13,326,259 
    12,811,120 


At March 31, 2005, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:

 
Georgia
  Pennsylvania
 
Portfolio
 
Portfolio

Gross unrealized appreciation  $  4,137,425     $  3,948,738  
Gross unrealized depreciation  (186,127 )    (862,736 ) 

Net unrealized appreciation  $  3,951,298     $  3,086,002  


At March 31, 2005, the Funds had the following open futures contracts:

Georgia    Number of    Expiration    Basis    Market    Unrealized 
Portfolio    Contracts    Date    Value    Value    Gain 

To Sell:                     
20-Year 6.000%                     
   U.S. Treasury Bond 
  170    6/05    $19,007,032    $18,933,750    $73,282 

 
Pennsylvania    Number of    Expiration    Basis    Market    Unrealized 
Portfolio    Contracts    Date    Value    Value    Gain 

To Sell:                     
20-Year 6.000%                     
   U.S. Treasury Bond 
  250    6/05    $27,948,438    $27,843,750    $104,688 


4. Class Specific Expenses

Pursuant to a Rule 12b-1 Distribution Plan (the “Plan”), each Fund pays a service fee with respect to Class A, B and C shares, calculated at an annual rate of 0.15% of the average daily net assets of each respective class. In addition, each Fund pays a distribution fee with respect to its Class B and C shares calculated at the annual rate of 0.50% and 0.55% of the average daily net assets of each class, respectively. For the year ended March 31, 2005,total Rule 12b-1 Distribution Plan fees, which are accrued daily and paid monthly, were as follows:

   
Class A 
 
Class B 
 
Class C 

Georgia Portfolio     
$58,605  
 
$ 57,432  
 
$60,088  

Pennsylvania Portfolio   
53,943 
 
190,639 
 
87,438 


48   Smith Barney Muni Funds   |   2005 Annual Report



Notes to Financial Statements (continued)

CGM has agreed to reimburse the Funds for any amount which exceeds the payments made by the Funds with respect to the Plan for Class A shares over the cumulative unreimbursed amounts spent by CGM in performing its services under the Plan. During the year ended March 31, 2005, no reimbursement was required.

For the year ended March 31, 2005, total Transfer Agency Services expenses were as follows:

Class A 
 
Class B 
Class C 

Georgia Portfolio 
$  8,222  
 
$ 3,844 
$3,464   

Pennsylvania Portfolio 
10,403 
 
13,764 
5,711 


For the year ended March 31, 2005,total Shareholder Communications expenses were as follows:

 
Class A 
Class B 
Class C 

Georgia Portfolio 
$15,151  
$ 7,315  
$6,408  

Pennsylvania Portfolio 
15,801 
17,272 
7,925 


5. Distributions Paid to Shareholders by Class

   
Year Ended 
Year Ended 
Georgia Portfolio   
March 31, 2005 
March 31, 2004 

Net Investment Income           
Class A    $ 1,814,628    $ 2,021,225   
Class B    358,939    468,304   
Class C*    345,389    389,582   

Total    $ 2,518,956    $ 2,879,111   

 
   
Year Ended 
Year Ended 
Pennsylvania Portfolio   
March 31, 2005 
March 31, 2004 

Class A           
Net investment income    $ 1,658,341    $ 1,774,966   
In excess of net investment income    19,476    37,119   

Total    $ 1,677,817    $ 1,812,085   

Class B           
Net investment income    $ 1,196,207    $ 1,526,834   
In excess of net investment income    15,883    36,469   

Total    $ 1,212,090    $ 1,563,303   

Class C*           
Net investment income    $ 504,031    $ 542,080   
In excess of net investment income    6,765    13,020   

Total    $ 510,796    $ 555,100   


* On April 29, 2004, Class L shares were renamed as Class C shares.

49   Smith Barney Muni Funds   |   2005 Annual Report



Notes to Financial Statements (continued)

6. Shares of Beneficial Interest

At March 31, 2005, the Trust had an unlimited amount of shares of beneficial interest authorized with a par value of $0.001 per share. The Funds have the ability to issue multiple classes of shares. Each share of a class represents an identical interest in its respective Fund and has the same rights, except that each class bears certain expenses specifically related to the distribution of its shares.

Transactions in shares of each class were as follows:

  Year Ended   Year Ended
  March 31, 2005   March 31, 2004

 
Georgia Portfolio 
Shares
 
Amount
 
Shares
 
Amount

Class A     
       
 
Shares sold  568,699    
$
7,344,354     500,118    
$ 
6,600,431  
Shares issued on reinvestment  45,391    
585,896     48,832    
645,452  
Shares reacquired  (528,888 )   
(6,847,693 )    (552,207 )   
(7,328,648 ) 

Net Increase (Decrease)  85,202    
$
1,082,557     (3,257 )   
$ 
(82,765 ) 

Class B     
       
 
Shares sold  14,519    
$
187,623     95,060    
$ 
1,255,701  
Shares issued on reinvestment  10,663    
137,308     16,609    
218,948  
Shares reacquired  (227,091 )   
(2,927,496 )    (257,541 )   
(3,398,718 ) 

Net Decrease  (201,909 )   
$
(2,602,565 )    (145,872 )   
$ 
(1,924,069 ) 

Class C*     
       
 
Shares sold  30,521    
$
393,986     113,112    
$ 
1,496,206  
Shares issued on reinvestment  18,683    
240,236     21,337    
280,905  
Shares reacquired  (138,899 )   
(1,795,405 )    (75,970 )   
(1,002,889 ) 

Net Increase (Decrease)  (89,695 )   
$
(1,161,183 )    58,479    
$ 
774,222  

 
  Year Ended   Year Ended
  March 31, 2005   March 31, 2004

 
Pennsylvania Portfolio 
Shares
 
Amount
 
Shares
   
Amount

Class A     
       
 
Shares sold  773,417    
$
9,982,380     1,160,913    
$
15,341,833  
Shares issued on reinvestment  65,587    
844,554     77,337    
1,019,400  
Shares reacquired  (754,549 )   
(9,749,321 )    (905,771 )   
$
(11,912,851
) 

Net Increase  84,455    
$
1,077,613     332,479    
$ 
4,448,382  

Class B     
       
 
Shares sold  73,459    
$
944,811     237,971    
$ 
3,140,149  
Shares issued on reinvestment  47,179    
605,445     60,216    
791,144  
Shares reacquired  (578,933 )   
(7,452,386 )    (715,094 )   
(9,408,774 ) 

Net Decrease  (458,295 )   
$
(5,902,130 )    (416,907 )   
$ 
(5,477,481 ) 

Class C*     
       
 
Shares sold  90,737    
$
1,166,710     140,394    
$ 
1,844,799  
Shares issued on reinvestment  21,987    
281,930     23,948    
314,324  
Shares reacquired  (186,557 )   
(2,398,463 )    (150,659 )   
(1,981,503 ) 

Net Increase (Decrease)  (73,833 )   
$
(949,823 )    13,683    
$ 
177,620  


* On April 29, 2004, Class L shares were renamed as Class C shares.

50   Smith Barney Muni Funds   |   2005 Annual Report



Notes to Financial Statements (continued)

7. Income Tax Information and Distributions to Shareholders

Subsequent to the fiscal year end, the Funds have made the following distributions:

Georgia Portfolio                           
                           
Declaration Date   
Record Date 
Payable Date 
Class A 
Class B 
Class C 

 March 23, 2005   
April 26, 2005 
April 29, 2005 
$0.0475 
$0.0416 
$0.0412 

 
Pennsylvania Portfolio 
   
Declaration Date   
Record Date 
Payable Date 
Class A 
Class B 
Class C 

 March 23, 2005   
April 26, 2005 
April 29, 2005 
$0.0485 
$0.0426 
$0.0422 


The tax character of distributions paid during the fiscal year ended March 31, 2005 were as follows:

   
Georgia 
Pennsylvania 
   
Portfolio 
Portfolio 

Distributions paid from: 
         
   Tax Exempt Income 
  $ 2,518,956    $ 3,358,579   
   Ordinary Income 
      42,124   

Total Distributions Paid 
  $ 2,518,956    $ 3,400,703   


The tax character of distributions paid during the fiscal year ended March 31, 2004 were as follows:

   
Georgia 
Pennsylvania 
   
Portfolio 
Portfolio 

Distributions paid from: 
         
   Tax Exempt Income 
  $ 2,871,300    $ 3,843,880   
   Ordinary Income 
  7,811    86,608   

Total Distributions Paid 
  $ 2,879,111    $ 3,930,488   


As of March 31, 2005, the components of accumulated earnings on a tax basis were as follows:

   
Georgia
Pennsylvania
   
Portfolio
Portfolio

Undistributed tax-exempt income    $  21,459    
$ 
 

Total undistributed earnings    $  21,459    
$ 
 
Capital loss carryforward(a)      (4,343,739 )   
(4,839,319 ) 
Other book/tax temporary differences      (247,467 )(b)  
(109,755 )(c)
Unrealized appreciation(d)      4,024,580    
3,190,690  

Total accumulated losses    $  (545,167 )   
$ 
(1,758,384 ) 


51   Smith Barney Muni Funds   |   2005 Annual Report



Notes to Financial Statements (continued)

(a)   As of March 31, 2005, the Funds had the following net capital loss carryforwards remaining:

   
Georgia
Pennsylvania
Year of Expiration   
Portfolio
Portfolio

3/31/2008    $ (732,152 )    $ (648,452 ) 
3/31/2009    (946,633 )    (857,242 ) 
3/31/2010        (159,254 ) 
3/31/2012    (244,540 )    (266,329 ) 
3/31/2013    (2,420,414 )    (2,908,042 ) 

    $ (4,343,739 )    $ (4,839,319 ) 


These amounts will be available to offset any future taxable capital gains.

(b)
Other book/tax temporary differences are attributable primarily to the realization for tax purposes of unrealized gains on certain futures contracts and the deferral of post-October capital losses for tax purposes.
 
(c)
Other book/tax temporary differences are attributable primarily to the realization for tax purposes of unrealized gains on certain futures contracts and differences in the book/tax treatment of various items.
 
(d)
The difference between book-basis and tax-basis unrealized appreciation is attributable primarily to the tax deferral of losses on wash sales and the difference between book & tax accretion methods for market discounts on fixed income securities.
 

8.Additional Information

Smith Barney Fund Management LLC (“SBFM”) and Citigroup Global Markets Inc. (“CGMI”) have submitted an Offer of Settlement of an administrative proceeding to the U.S. Securities and Exchange Commission (“SEC”) in connection with an investigation into the 1999 appointment of an affiliated transfer agent for the Smith Barney family of mutual funds (the “Funds”). SBFM and CGMI understand that the SEC has accepted the Offer of Settlement, but has not yet issued the administrative order.

The SEC order will find that SBFM and CGMI willfully violated Section 206(1) of the Investment Advisers Act of 1940 (“Advisers Act”). Specifically, the order will find that SBFM and CGMI knowingly or recklessly failed to disclose to the boards of the Funds in 1999 when proposing a new transfer agent arrangement with an affiliated transfer agent that:First Data Investors Services Group (“First Data”), the Funds’then-existing transfer agent, had offered to continue as transfer agent and do the same work for substantially less money than before; and that Citigroup Asset Management (“CAM”) had entered into a side letter with First Data under which CAM agreed to recommend the appointment of First Data as sub-transfer agent to the affiliated transfer agent in exchange, among other things, for a guarantee by First Data of specified amounts of asset management and investment banking fees to CAM and CGMI. The order also will find that SBFM and CGMI willfully violated Section 206(2) of the Advisers Act by virtue of the omissions discussed above and other misrepresentations and omissions in the materials provided to the Funds’ boards, including the failure to make clear that the affiliated transfer agent would earn a high profit for performing limited functions while First Data continued to perform almost all of the

52   Smith Barney Muni Funds   |   2005 Annual Report



Notes to Financial Statements (continued)

transfer agent functions, and the suggestion that the proposed arrangement was in the Funds’ best interests and that no viable alternatives existed. SBFM and CGMI do not admit or deny any wrongdoing or liability. The settlement will not establish wrongdoing or liability for purposes of any other proceeding.

The SEC will censure SBFM and CGMI and order them to cease and desist from violations of Sections 206(1) and 206(2) of the Advisers Act. The order will require Citigroup to pay $208.1 million, including $109 million in disgorgement of profits, $19.1 million in interest, and a civil money penalty of $80 million. Approximately $24.4 million has already been paid to the Funds, primarily through fee waivers. The remaining $183.7 million, including the penalty, will be paid to the U.S. Treasury and then distributed pursuant to a plan to be prepared by Citigroup and submitted within 90 days of the entry of the order for approval by the SEC. The distribution plan may also include a portion of certain escrowed transfer agency fees, in accordance with the terms of the order.

The order will require SBFM to recommend a new transfer agent contract to the Fund boards within 180 days of the entry of the order; if a Citigroup affiliate submits a proposal to serve as transfer agent or sub-transfer agent, an independent monitor must be engaged at the expense of SBFM and CGMI to oversee a competitive bidding process. Under the order, Citigroup also will be required to comply with an amended version of a vendor policy that Citigroup instituted in August 2004. That policy, as amended, among other things, requires that when requested by a Fund board, CAM will retain at its own expense an independent consulting expert to advise and assist the board on the selection of certain service providers affiliated with Citigroup.

At this time, there is no certainty as to how the proceeds of the settlement will be distributed, to whom such distributions will be made, the methodology by which such distributions will be allocated, and when such distributions will be made. Although there can be no assurance, Citigroup does not believe that this matter will have a material adverse effect on the Funds.

9. Legal Matters

Beginning in June, 2004, class action lawsuits alleging violations of the federal securities laws were filed against Citigroup Global Markets Inc. (the “Distributor”) and a number of its affiliates, including Smith Barney Fund Management LLC and Salomon Brothers Asset Management Inc (the “Advisers”), substantially all of the mutual funds managed by the Advisers (the “Funds”), and directors or trustees of the Funds. The complaints alleged, among other things, that the Distributor cre-

53   Smith Barney Muni Funds   |   2005 Annual Report



Notes to Financial Statements (continued)

ated various undisclosed incentives for its brokers to sell Smith Barney and Salomon Brothers funds. In addition, according to the complaints, the Advisers caused the Funds to pay excessive brokerage commissions to the Distributor for steering clients towards proprietary funds. The complaints also alleged that the defendants breached their fiduciary duty to the Funds by improperly charging Rule 12b-1 fees and by drawing on fund assets to make undisclosed payments of soft dollars and excessive brokerage commissions. The complaints also alleged that the Funds failed to adequately disclose certain of the allegedly wrongful conduct. The complaints sought injunctive relief and compensatory and punitive damages, rescission of the Funds’contracts with the Advisers, recovery of all fees paid to the Advisers pursuant to such contracts and an award of attorneys’ fees and litigation expenses.

On December 15, 2004, a consolidated amended complaint (the “Complaint”) was filed alleging substantially similar causes of action. While the lawsuit is in its earliest stages, to the extent that the Complaint purports to state causes of action against the Funds, Citigroup Asset Management believes the Funds have significant defenses to such allegations, which the Funds intend to vigorously assert in responding to the Complaint.

Additional lawsuits arising out of these circumstances and presenting similar allegations and requests for relief may be filed against the defendants in the future.

As of the date of this report, Citigroup Asset Management and the Funds believe that the resolution of the pending lawsuit will not have a material effect on the financial position or results of operations of the Funds or the ability of the Advisers and their affiliates to continue to render services to the Funds under their respective contracts.

54   Smith Barney Muni Funds   |   2005 Annual Report



Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees of
Smith Barney Muni Funds:

We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Georgia Portfolio and Pennsylvania Portfolio (“Funds”) of Smith Barney Muni Funds as of March 31, 2005, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Georgia Portfolio and Pennsylvania Portfolio of Smith Barney Muni Funds as of March 31, 2005, and the results of their operations for the year then ended, the changes in their net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.


KPMG LLP                                     


NewYork, NewYork
May 27, 2005

55   Smith Barney Muni Funds   |   2005 Annual Report



Additional Information (unaudited)

Information about Trustees and Officers

The business and affairs of the Smith Barney Muni Funds (“Trust”) — Georgia and Pennsylvania Portfolios (“Funds”) are managed under the direction of the Board of Trustees. Information pertaining to theTrustees and Officers of theTrust is set forth below. The Statement of Additional Information includes additional information about Trustees and is available, without charge, upon request by calling theTrust’s transfer agent (Citigroup Trust Bank, fsb. at 1-800-451-2010).

                Number of     
        Term of        Portfolios     
        Office* and    Principal    In Fund    Other Board 
    Position(s)    Length    Occupation(s)    Complex    Memberships 
Name, Address    Held with    of Time    During Past    Overseen    Held by 
and Birth Year    Fund    Served    Five Years    by Trustee    Trustee 

NON-INTERESTED                     
TRUSTEES:                     
                     
Lee Abraham    Trustee    Since   
Retired; Former Director 
  27    None 
13732 LeHavre Drive        1999   
of Signet Group PLC 
       
Frenchman’s Creek                     
Palm Beach Gardens,                      
 FL 33410                     
Birth Year: 1927                     
                     
Jane F. Dasher    Trustee    Since   
Controller of PBK 
  27    None 
Korsant Partners        1999   
Holdings Inc. , a family 
       
283 Greenwich Avenue           
investment company 
       
3rd Floor                     
Greenwich, CT 06830                     
Birth Year: 1949                     
                     
Donald R. Foley    Trustee    Since    Retired    18    None 
3668 Freshwater Drive        1985             
Jupiter, FL 33477                     
Birth Year: 1922                     
                     
Richard E. Hanson, Jr.     Trustee    Since   
Retired; Former Head of 
  27    None 
2751 Vermont Route 140        1999   
the New Atlanta Jewish 
       
Poultney, VT 05764           
Community High School 
       
Birth Year: 1941                     
                     
Paul Hardin    Trustee    Since   
Professor of Law & 
  34    None 
12083 Morehead Drive        1994   
Chancellor Emeritus 
       
Chapel Hill,            
at the University of 
       
 NC 27514-8426            North Carolina         
Birth Year: 1931                     
                     
Roderick C. Rasmussen    Trustee    Since   
Investment Counselor 
  27    None 
9 Cadence Court        1985             
Morristown, NJ 07960                     
Birth Year: 1926                     
                     
John P. Toolan    Trustee    Since   
          Retired 
  27   
John Hancock 
13 Chadwell Place        1985            Funds 
Morristown, NJ 07960                     
Birth Year: 1930                     

56   Smith Barney Muni Funds   |   2005 Annual Report



Additional Information (unaudited) (continued)
           
  Number of     
        Term of   
  Portfolios     
        Office* and   
Principal
  In Fund    Other Board 
   
Position(s) 
  Length   
Occupation(s)
  Complex    Memberships 
Name, Address   
Held with 
  of Time   
During Past
  Overseen    Held by 
and Birth Year    Fund    Served   
Five Years
  by Trustee    Trustee 

INTERESTED           
       
TRUSTEE:           
       
                     
R. Jay Gerken, CFA**    Chairman,     Since   
Managing Director of
  219    None 
Citigroup Asset    President    2002   
Citigroup Global Markets
       
 Management    and Chief       
Inc. (“CGM”); Chairman,
       
 (“CAM”)    Executive       
President and Chief
       
399 Park Avenue    Officer       
Executive Officer of Smith
       
4th Floor           
Barney Fund Management
       
New York, NY 10022           
LLC (“SBFM”), Travelers
       
Birth Year: 1951           
Investment Adviser, Inc.
       
           
(“TIA”) and Citi Fund
       
           
Management Inc. (“CFM”); 
   
           
President and Chief
       
           
Executive Officer of certain
       
           
mutual funds associated
       
           
with Citigroup Inc.
       
           
(“Citigroup”); Formerly,
       
           
Portfolio Manager of
       
           
Smith Barney Allocation
       
           
Series Inc. (from 1996 to
       
           
2001) and Smith Barney
       
           
Growth and Income Fund
       
           
(from 1996 to 2000)
       
                   
OFFICERS:           
       
                     
Andrew B. Shoup    Senior Vice    Since   
Director of CAM; Senior
  N/A    N/A 
CAM    President    2003   
Vice President and Chief
       
125 Broad Street    and Chief       
Administrative Officer of
       
11th Floor    Administrative   
mutual funds associated
       
New York, NY 10004    Officer       
with Citigroup; Head of
       
Birth Year: 1956           
International Funds
       
           
Administration of CAM
       
           
(from 2001 to 2003);
       
           
Director of Global Funds
       
           
Administration of CAM
       
           
(from 2000 to 2001);
       
           
Head of U.S. Citibank
       
           
Funds Administration
       
           
of CAM (from 1998
       
           
to 2000)
       

57   Smith Barney Muni Funds   |   2005 Annual Report



Additional Information (unaudited) (continued)
           
  Number of     
        Term of   
  Portfolios     
        Office* and   
Principal
  In Fund    Other Board 
   
Position(s) 
  Length   
Occupation(s)
  Complex    Memberships 
Name, Address   
Held with 
  of Time   
During Past
  Overseen    Held by 
and Birth Year    Fund    Served   
Five Years
  by Trustee    Trustee 

Robert J. Brault    Chief    Since   
Director of CGM; Chief
  N/A    N/A 
CAM    Financial    2004   
Financial Officer and
       
125 Broad Street    Officer and       
Treasurer of certain
       
11th Floor    Treasurer       
mutual funds
       
New York, NY 10004           
associated with
       
Birth Year: 1965           
Citigroup; Director of
       
           
Internal Control for
       
           
CAM U.S. Mutual Fund
       
           
Administration (from
       
           
2002 to 2004);
       
           
Director of Project
       
           
Management &
       
           
Information Systems
       
           
for CAM U.S. Mutual
       
           
Fund Administration
       
           
(from 2000 to 2002);
       
           
Vice President of
       
           
Mutual Fund
       
           
Administration at
       
           
investors Capital
       
           
Services (from 1999
       
           
to 2000)
       
                     
Peter M. Coffey    Vice    Since   
Managing Director of
  N/A    N/A 
CAM    President    1987   
CGM; Investment Officer
       
399 Park Avenue    and       
of SBFM
       
4th Floor    Investment       
       
New York, NY 10022    Officer       
       
Birth Year: 1944           
       

58   Smith Barney Muni Funds   |   2005 Annual Report



Additional Information (unaudited) (continued)
                Number of     
        Term of        Portfolios     
        Office* and    Principal    In Fund    Other Board 
   
Position(s) 
  Length    Occupation(s)    Complex    Memberships 
Name, Address   
Held with 
  of Time    During Past    Overseen    Held by 
and Birth Year    Fund    Served    Five Years    by Trustee    Trustee 

Andrew Beagley    Chief Anti-    Since    Director of CGM (since    N/A    N/A 
CAM    Money    2002    2000); Director of         
399 Park Avenue    Laundering        Compliance, North         
4th Floor    Compliance        America, CAM (since         
New York, NY 10022    Officer        2000); Chief Anti-         
Birth Year: 1962            Money Laundering         
    Chief    Since    Compliance Officer and         
    Compliance    2004    Chief Compliance Officer         
    Officer        of certain mutual funds         
            associated with         
            Citigroup; Director of         
            Compliance, Europe,          
            the Middle East and         
            Africa, CAM (from         
            1999 to 2000); Chief         
            Compliance Officer,          
            SBFM, CFM, TIA         
                     
Robert I. Frenkel    Secretary    Since    Managing Director and    N/A    N/A 
CAM    and Chief    2003    General Counsel of         
300 First Stamford Place    Legal        Global Mutual Funds         
4th Floor    Officer        for CAM and its         
Stamford, CT 06902            predecessor (since         
Birth Year: 1954            1994); Secretary and         
            Chief Legal Officer of         
            mutual funds associated         
            with Citigroup         


* Each Trustee and Officer serves until his or her successor has been duly elected and qualified.
 
** Mr. Gerken is an “interested person” of the Trust as defined in the Investment Company Act of 1940, as amended, because Mr. Gerken is an officer of SBFM and certain of its affiliates.
 

59   Smith Barney Muni Funds   |   2005 Annual Report



Important Tax Information (unaudited)

All of the net investment income distributions paid monthly by the Georgia Portfolio during the fiscal year ending March 31, 2005 qualify as tax-exempt interest dividends for Federal income tax purposes.

All of the net investment income distributions paid monthly by the Pennsylvania Portfolio from April 2004 through February 2005 qualify as tax-exempt interest dividends for Federal income tax purposes. Additionally, 84.60% of the net investment income distribution paid in March 2005 qualifies as tax-exempt interest dividends for Federal income tax purposes.

Please retain this information for your records.

 

60   Smith Barney Muni Funds   |   2005 Annual Report



SMITH BARNEY
MUNI FUNDS
   

     
  TRUSTEES  INVESTMENT MANAGER 
  Lee Abraham  Smith Barney Fund 
  Jane F. Dasher     Management LLC 
  Donald R. Foley   
  R. Jay Gerken, CFA  DISTRIBUTOR 
     Chairman  Citigroup Global Markets Inc.  
  Richard E. Hanson, Jr.    
  Paul Hardin  CUSTODIAN 
  Roderick C. Rasmussen  State Street Bank and 
  John P. Toolan     Trust Company 
     
  OFFICERS  TRANSFER AGENT 
  R. Jay Gerken, CFA  Citicorp Trust Bank, fsb.  
  President and  125 Broad Street, 11th Floor 
  Chief Executive Officer  New York, New York 10004 
 
  Andrew B. Shoup   
  Senior Vice President and  SUB-TRANSFER AGENT 
  Chief Administrative Officer  PFPC Inc.  
    P. O. Box 9699 
  Robert J. Brault  Providence, Rhode Island 
  Chief Financial Officer  02940-9699 
  and Treasurer   
 
  Peter M. Coffey   
  Vice President and   
  Investment Officer   
 
  Andrew Beagley   
  Chief Anti-Money Laundering   
  Compliance Officer   
  and Chief Compliance Officer   
 
  Robert I. Frenkel   
  Secretary and   
  Chief Legal Officer   


Smith Barney Muni Funds


Georgia Portfolio
Pennsylvania Portfolio
The Funds are separate investment funds of the
Smith Barney Muni Funds, a Massachusetts
business trust.
 

This report is submitted for the general information of the shareholders of Smith Barney Muni Funds —Georgia and Pennsylvania Portfolios, but it may also be used as sales literature when preceded or accompanied by the current Prospectus.

SMITH BARNEY MUNI FUNDS

Smith Barney Mutual Funds

125 Broad Street

10th Floor, MF-2

New York, New York 10004

This report must be preceded or accompanied by a free prospectus. Investors should consider the Funds’ investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the Funds. Please read the prospectus carefully before investing.

www.citigroupam.com

     

The Funds file their complete schedule of portfolio holdings with Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the Commission’s website at www.sec.gov. The Funds’ Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q from the Funds, shareholders can call 1-800-451-2010.

Information on how the Funds voted proxies relating to portfolio securities during the 12-month period ended June 30, 2004 and a description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling 1-800-451-2010, (2) on the Funds’ website at www.citigroupam.com and (3) on the SEC’s website at www.sec.gov.

  ©2005 Citigroup Global Markets Inc.
Member NASD, SIPC

FD0789 5/05                                         05-8558


 


 

ITEM 2. CODE OF ETHICS.
   
  The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller.
   
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
   
  The Board of Trustees of the registrant has determined that Jane Dasher, Chairman of the Board’s Audit Committee, possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an “audit committee financial expert,” and has designated Ms. Dasher as the Audit Committee’s financial expert. Ms. Dasher is an “independent” Trustee pursuant to paragraph (a)(2) of Item 3 to Form N-CSR.
   

Item 4. Principal Accountant Fees and Services

  (a)      Audit Fees for the Smith Barney Muni Funds were $170,500 and $170,500 for the years ended 3/31/05 and 3/31/04.
 
  (b)      Audit-Related Fees for the Smith Barney Muni Funds were $0 and $0 for the years ended 3/31/05 and 3/31/04.
 
  (c)      Tax Fees for Smith Barney Muni Funds were $38,600 and $18,500 for the years ended 3/31/05 and 3/31/04. These amounts represent aggregate fees paid for tax compliance, tax advice and tax planning services, which include (the filing and amendment of federal, state and local income tax returns, timely RIC qualification review and tax distribution and analysis planning) rendered by the Accountant to Smith Barney Muni Funds.
 
  (d)      All Other Fees for Smith Barney Muni Funds were $0 and $0 for the years ended 3/31/05 and 3/31/04.
 
  (e)      (1) Audit Committee’s pre–approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
 
    The Charter for the Audit Committee (the “Committee”) of the Board of each registered investment company (the “Fund”) advised by Smith Barney Fund Management LLC or Salomon Brothers Asset Management Inc or one of their affiliates (each, an “Adviser”) requires that the Committee shall approve (a) all audit and permissible non-audit services to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund’s independent registered public accounting firm to the Adviser and any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the Fund. The Committee may implement policies and procedures by which such services are approved other than by the full Committee.
 
    The Committee shall not approve non-audit services that the Committee believes may impair the independence of the independent registered public accounting firm. As of the date of the approval of this Audit Committee Charter, permissible non-audit services include any professional services (including tax services), that are not prohibited services as described below, provided to the Fund by the independent registered public accounting firm, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible.
 

 

    Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and any service providers controlling, controlled by or under common control with the Adviser that provide ongoing services to the Fund (“Covered Service Providers”) constitutes not more than 5% of the total amount of revenues paid to the independent registered public accounting firm during the fiscal year in which the permissible non-audit services are provided to (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit.
     
    (2) For the Smith Barney Muni Funds, the percentage of fees that were approved by the audit committee, with respect to: Audit-Related Fees were 100% and 100% for the years ended 3/31/05 and 3/31/04; Tax Fees were 100% and 100% for the years ended 3/31/05 and 3/31/04; and Other Fees were 100% and 100% for the years ended 3/31/05 and 3/31/04.
     
  (f)      N/A
 
  (g)      Non-audit fees billed by the Accountant for services rendered to Smith Barney Muni Funds and CAM and any entity controlling, controlled by, or under common control with CAM that provides ongoing services to Smith Barney Muni Funds. Fees billed to and paid by Citigroup Global Markets Inc. related to transfer agent matter as fully described in the notes to the financial statements titled “Additional Information” were $75,000 and $0 for the years ended 3/31/05 and 3/31/04.
 
  (h)      Yes. The Smith Barney Muni Funds’ Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates which were not pre-approved (not requiring pre-approval) is compatible with maintaining the Accountant's independence. All services provided by the Accountant to the Smith Barney Muni Funds or to Service Affiliates which were required to be pre-approved were pre-approved as required.
 
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
   
  Not applicable.
   
ITEM 6. [RESERVED]
   
ITEM 7.  DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. 
   
  Not applicable. 
   
ITEM 8.  [RESERVED] 
   
ITEM 9.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 
   
  Not applicable. 
   
ITEM 10.  CONTROLS AND PROCEDURES. 
   
  (a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934.
 

  (b)      There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant’s last fiscal half-year (the registrant’s second fiscal half-year in the case of an annual report) that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting.
 
ITEM 11.  EXHIBITS.   
   
  (a)  Code of Ethics attached hereto. 
   
  Exhibit 99.CODE ETH 
   
  (b)  Attached hereto. 
 
  Exhibit 99.CERT  Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 
 
  Exhibit 99.906CERT  Certifications pursuant to Section 906 of the Sarbanes-Oxley of 2002 

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized.

Smith Barney Muni Funds

By:  /s/ R. Jay Gerken 
  R. Jay Gerken 
  Chief Executive Officer of 
  Smith Barney Muni Funds 
 
Date: June 9, 2005 

     Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:  /s/ R. Jay Gerken 
  R. Jay Gerken 
  Chief Executive Officer of 
  Smith Barney Muni Funds 
 
Date:  June 9, 2005 
 
 
By:  /s/ Robert J. Brault 
  Robert J. Brault 
  Chief Financial Officer of 
  Smith Barney Muni Funds 
 
Date: June 9, 2005 


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EX-99.CODE ETH 14 c37168_ex99-codeth.htm

EX 99.CODE ETH

SARBANES-OXLEY ACT CODE OF ETHICS
FOR PRINCIPAL EXECUTIVE AND

SENIOR FINANCIAL OFFICERS OF CAM/U.S. REGISTERED INVESTMENT
COMPANIES

I. Covered Officers/Purpose of the Code

     This code of ethics (the “Code”) for Citigroup Asset Management’s (“CAM’s”) U. S. registered proprietary investment companies (collectively, “Funds” and each a, “Company”) applies to each Company’s Chief Executive Officer, Chief Administrative Officer, Chief Financial Officer and Controller (the “Covered Officers”) for the purpose of promoting:

  • honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

  • full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange Commission (“SEC”) and in other public communications made by the Company;

  • compliance with applicable laws and governmental rules and regulations;

  • the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and

  • accountability for adherence to the Code.

     Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest.

II. Administration of Code

     The Regional Director of CAM Compliance, North America (“Compliance Officer”) is responsible for administration of this Code, including granting pre-approvals (see Section III below) and waivers (as described in Section VI below), applying this Code in specific situations in which questions are presented under it and interpreting this Code in any particular situation.

III. Covered Officers Should Ethically Handle Actual and Apparent Conflicts of Interest


     Overview. A “conflict of interest” occurs when a Covered Officer’s private interest interferes with the interests of, or his service to, the Company. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the Company.

     Certain conflicts of interest arise out of the relationships between Covered Officers and the Company and already are subject to conflict of interest provisions in the Investment Company Act of 1940 (“Investment Company Act”) and the Investment Advisers Act of 1940 (“Investment Advisers Act”). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Company because of their status as “affiliated persons” of the Company. The compliance programs and procedures of the Company and its investment adviser are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code (see Section VII below).

     Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between a Company and the investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for a Company or for the adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the adviser and a Company. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Company and the adviser and is consistent with the performance by the Covered Officers of their duties as officers of a Company. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Funds’ Boards of Directors\Trustees (“Boards”) that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes.

     Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Company.

*   *   *   *

    Each Covered Officer must:

  • not use his personal influence or personal relationships improperly to influence investment decisions or financial reporting ( e.g. through fraudulent accounting

    practices) by the Company whereby the Covered Officer1 would benefit personally to the detriment of the Company; or
  • not cause the Company to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than for the benefit of the Company; and

  • not use material non-public knowledge of portfolio transactions made or contemplated for the Company to trade personally or cause others to trade personally in contemplation of the market affect of such transactions.

  • There are some potential conflict of interest situations that should always be discussed with the Compliance Officer, if material. Examples are as follows:

               (1) service as a director on the board of any public or private company;

               (2) any ownership interest in, or any consulting or employment relationship with, any of the Company’s service providers, other than its investment adviser;

               (3) a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Company for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer’s employment, such as compensation or equity ownership; and

               (4) the receipt of any gifts or the conveyance of any value (including entertainment ) from any company with which the Company has current or prospective business dealings, except:

                              (a) any non-cash gifts of nominal value (nominal value is less than $100); and

                              (b) customary and reasonable meals and entertainment at which the giver is present, such as the occasional business meal or sporting event.

IV. Disclosure and Compliance

    Each Covered Officer:



  • should be familiar with his or her responsibilities in connection with the disclosure requirements generally applicable to the Company;

1      Any activity or relationship that would present a conflict for a Covered Officer would also present a conflict for the Covered Officer if a member of a Covered Officer’s family (spouse, minor children and any account over which a Covered Officer is deemed to have beneficial interest) engages in such an activity or has such a relationship.
 

  • should not knowingly misrepresent, or knowingly cause others to misrepresent, facts about the Company to others, whether within or outside the Company, including to the Company’s directors and auditors, and to governmental regulators and self-regulatory organizations;

  • should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Funds and the investment adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and

  • is responsible to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations.

V. Reporting and Accountability

    Each Covered Officer must:

  • upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board that the Covered Officer has received, read, and understands the Code;

  • annually thereafter affirm to the Board that he or she has complied with the requirements of the Code;

  • annually disclose affiliations and other relationships related to conflicts of interest;

  • not retaliate against any other Covered Officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and

  • notify the Compliance Officer promptly if he knows of any violation of this Code (failure to do so is itself a violation of this Code).

      In rendering decisions and interpretations and in conducting investigations of potential violations under the Code, the Compliance Officer may, at his discretion, consult with such persons as he determines to be appropriate, including, but not limited to, a senior legal officer of the Company or its investment adviser or its affiliates, independent auditors or other consultants, subject to any requirement to seek pre-approval from the Company’s audit committee for the retention of independent auditors to perform permissible non-audit services. The Funds will follow these procedures in investigating and enforcing the Code:

  • the Compliance Officer will take all appropriate action to investigate any potential violation of which he becomes aware;

  • if, after investigation the Compliance Officer believes that no violation has occurred, the Compliance Officer is not required to take any further action;

  • any matter that the Compliance Officer believes is a violation will be reported to the Directors of the Fund who are not “interested persons” as defined in the Investment Company Act the (“Non-interested Directors”);

  • if the Non-interested Directors of the Board concur that a violation has occurred, it will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; and

  • any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules.

     The Compliance Officer shall submit an annual report to the Board describing any waivers granted.

VI. Waivers2

      A Covered Officer may request a waiver of any of the provisions of the Code by submitting a written request for such waiver to the Compliance Officer, setting forth the basis of such request and explaining how the waiver would be consistent with the standards of conduct described herein. The Compliance Officer shall review such request and make a determination thereon in writing, which shall be binding.

      In determining whether to waive any provisions of this Code, the Compliance Officer shall consider whether the proposed waiver is consistent with honest and ethical conduct and other purposes of this Code.

VII. Other Policies and Procedures

      This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds’ investment advisers, principal underwriters, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The codes of ethics of the funds and the investment advisers and principal underwriters under Rule 17j-1 of the Investment Company Act and the Citigroup Code of Conduct and Citigroup Statement of Business Practices as well as other policies of the Fund’s investment advisers or their affiliates are separate requirements applying to the Covered Officers and others, and are not part of this Code.


2      For purposes of this Code, Item 2 of Form N-CSR defines “waiver” as “the approval by a Company of a material departure from a provision of the Code” and includes an “implicit waiver,” which means a Company’s failure to take action within a reasonable period of time regarding a material departure from a provision of the Code that has been made known to an executive officer of the Company.


VIII. Amendments

      Any amendments to this Code, other than amendments to Exhibits A, B and C must be approved or ratified by a majority vote of the Board, including a majority of Non-interested Directors.

IX. Confidentiality

      All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the appropriate Board and Company and their respective counsel, counsel to the non-Interested Directors or independent auditors or other consultants referred to in Section V above.

X. Internal Use

      The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Company, as to any fact, circumstance, or legal conclusion.


EX-99.CERT 15 c37168_ex99-cert.htm

CERTIFICATIONS PURSUANT TO SECTION 302
EX-99.CERT

 

CERTIFICATIONS

I, R. Jay Gerken, certify that:
   
1.      I have reviewed this report on Form N-CSR of Smith Barney Muni Funds – Georgia Portfolio;
 
2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
 
4.      The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have:
 
  a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)      Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
 
  c)      Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal half-year (the registrant’s second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.      The registrant’s other certifying officers and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
  a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial data; and
 
  b)      Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:  June 9, 2005    /s/ R. Jay Gerken 


      R. Jay Gerken 
      Chief Executive Officer 


 

I, Robert J. Brault, certify that:
   
1.      I have reviewed this report on Form N-CSR of Smith Barney Muni Funds – Georgia Portfolio;
 
2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.      Based on my knowledge, the financial information included in this report, and the financial statements on which the financial information is based, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
 
4.      The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act) for the registrant and have:
 
  a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)      Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
 
  c)      Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal half-year (the registrant’s second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.      The registrant’s other certifying officers and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
  a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial data; and
 
  b)      Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:  June 9, 2005    /s/ Robert J. Brault 


      Robert J. Brault 
      Chief Financial Officer 

 



CERTIFICATIONS PURSUANT TO SECTION 302
EX-99.CERT

CERTIFICATIONS

 

I, R. Jay Gerken, certify that:
   
1.      I have reviewed this report on Form N-CSR of Smith Barney Muni Funds – Pennsylvania Portfolio;
 
2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
 
4.      The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have:
 
  a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)      Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
 
  c)      Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal half-year (the registrant’s second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.      The registrant’s other certifying officers and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
  a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial data; and
 
  b)      Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:  June 9, 2005    /s/ R. Jay Gerken 


      R. Jay Gerken 
      Chief Executive Officer 

 



 

I, Robert J. Brault, certify that:
   
1.      I have reviewed this report on Form N-CSR of Smith Barney Muni Funds – Pennsylvania Portfolio;
 
2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.      Based on my knowledge, the financial information included in this report, and the financial statements on which the financial information is based, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
 
4.      The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act) for the registrant and have:
 
  a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)      Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
 
  c)      Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal half-year (the registrant’s second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.      The registrant’s other certifying officers and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
  a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial data; and
 
  b)      Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:  June 9, 2005    /s/ Robert J. Brault 


      Robert J. Brault 
      Chief Financial Officer 

 


EX-99.906 CERT 16 c37168_ex99-906cert.htm

CERTIFICATIONS PURSUANT TO SECTION 906
EX-99.906CERT

CERTIFICATION

R. Jay Gerken, Chief Executive Officer, and Robert J. Brault, Chief Financial Officer of Smith Barney Muni Funds – Georgia Portfolio (the “Registrant”), each certify to the best of his or her knowledge that:

     1. The Registrant’s periodic report on Form N-CSR for the period ended March 31, 2005 (the “Form N-CSR”) fully complies with the requirements of section 15(d) of the Securities Exchange Act of 1934, as amended; and

     2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Chief Executive Officer    Chief Financial Officer 
Smith Barney Muni Funds –    Smith Barney Muni Funds – 
Georgia Portfolio    Georgia Portfolio 
 
/s/ R. Jay Gerken    /s/ Robert J. Brault


R. Jay Gerken    Robert J. Brault 
Date: June 9, 2005    Date: June 9, 2005 

This certification is being furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR with the Commission.


CERTIFICATIONS PURSUANT TO SECTION 906
EX-99.906CERT

CERTIFICATION

R. Jay Gerken, Chief Executive Officer, and Robert J. Brault, Chief Financial Officer of Smith Barney Muni Funds – Pennsylvania Portfolio (the “Registrant”), each certify to the best of his or her knowledge that:

      1. The Registrant’s periodic report on Form N-CSR for the period ended March 31, 2005 (the “Form N-CSR”) fully complies with the requirements of section 15(d) of the Securities Exchange Act of 1934, as amended; and

     2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Chief Executive Officer    Chief Financial Officer 
Smith Barney Muni Funds –    Smith Barney Muni Funds – 
Pennsylvania Portfolio    Pennsylvania Portfolio 
 
/s/ R. Jay Gerken    /s/ Robert J. Brault


R. Jay Gerken    Robert J. Brault 
Date: June 9, 2005    Date: June 9, 2005 

This certification is being furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR with the Commission.


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